What’s next for Fannie and Freddie?
President Obama has directed a “small team of advisers to develop a proposal that would keep the government playing a major role in the nation’s mortgage market, extending a federal loan subsidy for most home buyers,” the Wall Street Journal reports.
Option one: rebrand
A decision that would retain or increase the government’s role in lending would certainly conflict with current legislation passed to wind down Fannie Mae and Freddie Mac, but Fox News reports that one option on the table being seriously considered is renaming the two mega giants that together own or service the majority of all mortgages in America.
Regarding this potentially fruitless move, Neil Cavuto of Fox News said, “More often than not, a new paint job ends up being the same snow job. Sometimes the jury remains out on name changes, like Kentucky Fried Chicken changing its name to KFC as if folks still didn’t still don’t know it’s fried chicken. Now it’s F chicken. are you F serious?”
Option two: become public utilities
Other options on the table include restructuring the two as public utilities overseen by a government regulator, says the WSJ. The government would no longer guarantee Fannie and Freddie’s health which would prevent more bailouts but would continue to backstop the mortgage-backed securities they issue using loans made by private banks.
Option three: shut them down
Another option would be to completely shut down the two organizations as Barney Frank called for in years past, wherein they would be replaced with several successors that would have their mortgage-backed securities guaranteed by the government if they pay fees. “A federal guarantee, by reducing the risk to investors, can make it cheaper for firms to raise money for making home loans, in turn reducing mortgage rates,” WSJ noted.
There are other options on the table, but clearly, no one has the answer and there is no consistency coming out of Washington as to the way forward for these two government sponsored entities, much less lending, much less housing as a whole. The issue will likely be shelved as campaign season wags the dog and media focuses on whether or not Bachmann knows it is Elvis’ death day or birth day. If rebranding is an option that wasn’t said in jest, we could be in real trouble at this pace.