US House Lawmakers Begin Debating Future Of Fannie, Freddie
03 Juni 2009 - 9:41PM
Dow Jones News
U.S. House of Representatives lawmakers on Wednesday began
debating the future structure of Fannie Mae (FNM) and Freddie Mac
(FRE), a discussion sure to divide policy makers along stark
ideological lines.
Republican members of a House panel advocated the
government-controlled mortgage finance companies be spun off as
private companies, in opening remarks before a House panel.
A key Democrat, however, immediately cast doubt on the idea that
the federal government should exit the business of supporting the
mortgage market.
"We created Fannie Mae and Freddie Mac because of a market
failure, and we ought to ensure that any new system of housing
finance continues to provide a stable source of funding and
long-term credit to help people to purchase homes," Chairman Paul
Kanjorski, D-Pa., of the Financial Services Committee's
Subcommittee on Capital Markets said at the start of the panel's
hearing.
Fannie and Freddie, which are government-sponsored entities, or
GSEs, were thrown into the conservatorship of their regulator last
fall after their mounting losses raised concerns they would
collapse, sending financial shock waves around the globe. The U.S.
government has agreed to pump $200 billion into each firm to keep
them solvent. So far, it has provided or committed to provide, $86
billion combined to the firms.
Policy makers are beginning to mull the future role for the
firms once they emerge from conservatorship, which could take
years. Critics blame the companies' hybrid private-public structure
for their downfall, saying it encouraged them to take excessive
risks because investors believed the government would bail them
out.
"Whatever the GSEs' ultimate fate, we can all agree that the
GSEs cannot continue as before. Socializing risk and privatizing
profit must end," said Rep. Spencer Bachus, R-Ala., the ranking
Republican on the House Financial Services Committee.
Several proposals have been floated for the future structure of
the companies, including folding them completely into the federal
government, spinning them off as purely private firms and reviving
them in their old form.
Former Treasury Secretary Henry Paulson advocated transforming
them into public utilities, with private shareholders but
restrictions on their activities and profits. Others have suggested
the firms could be revived as cooperatives in which the major
mortgage market participants would hold shares. Fannie and Freddie,
in turn, would provide guarantees on mortgage-backed
securities.
Privatizing the firms would meet stiff resistance from industry
groups. The National Association of Home Builders, the National
Association of Realtors and the Mortgage Bankers Association all
advocate some level of federal support for the mortgage market.
Fannie and Freddie shouldn't be completely privatized "because
such companies could not be counted on to provide liquidity in
times of crisis or to consistently address affordable housing
needs," NAHB Chairman Joe Robson argued in prepared remarks to the
panel.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com