This article was originally published by the Fiscal Times on Sunday, Jan. 23, 2011.
As the administration prepares its proposals for overhauling Fannie Mae and Freddie Mac, the housing industry and public interest groups are floating ideas of their own.
By Katherine Reynolds Lewis
As the Obama administration struggles to draft a report to Congress on how best to overhaul Fannie Mae and Freddie Mac, industry and public interest groups are promoting plans of their own for the two mortgage giants.
The proposals range from replacing Fannie and Freddie with new, chartered private firms to gradually shrinking and privatizing them. After the housing bubble burst, leading to the worst recession since the Depression, the government stepped in to secure the companies’ $6 trillion worth of U.S. mortgages in order to avoid an even worse financial calamity.
Before becoming embroiled in the real estate collapse and financial crisis, the two government-sponsored enterprises for decades fueled the development of a liquid secondary mortgage market and kept capital flowing to American homebuyers. "The problems we have are what the government should be guaranteeing, what it shouldn't. None of those things really fundamentally involve throwing Fannie and Freddie out," said Guy Cecala, publisher of Inside Mortgage Finance. Congressional reform is likely to take at least two years, "given the precarious state of the housing market and mortgage finance overall."