Gov’t mulls changes to Fannie, Freddie

Marketplace Staff Aug 6, 2009
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Gov’t mulls changes to Fannie, Freddie

Marketplace Staff Aug 6, 2009
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TEXT OF INTERVIEW

Steve Chiotakis: Change could soon be on the way for Fannie Mae and Freddie Mac. Those are the two government-sponsored enterprises that own half of the nation’s mortgages. They’ve been treading water since back in September, when they were essentially taken over by Uncle Sam. But today, the White House will be looking at some new ideas for Fannie and Freddie. And Marketplace’s Jeremy Hobson joins us live from our bureau in New York to talk about that. Good morning Jeremy.

Jeremy Hobson: Morning Steve.

Chiotakis: So what’s the idea here?

Hobson: Well the Washington Post is reporting that it could be another one of these “good bank/bad bank” situations where you take the bad assets on the books of Fannie and Freddie and put them in the bad bank and therefore encourage private investment to come in to the good bank so the good bank can buy up more mortgages and free banks to make loans.

Chiotakis: And the bad bank would be supported by the government?

Hobson: Well unless you want to support it, Steve, I don’t think there are very many private investors who want to put money into the bad bank. But keep in mind the government has already put itself at risk for several hundred billion dollars when it comes to Fannie and Freddie, and the Fed has bought about a trillion dollars worth of their debt. So they’ve got to figure out some kind of solution going forward.

Now I will say we’ve heard about this good bank/bad bank thing before. They were going to do this, if you remember, with the toxic assets on the bank balance sheets back in the fall. We’ve yet to actually see a model like this really materialize.

Chiotakis: And we should point out that this is just one of the ideas in the mix.

Hobson: Right. The White House tells the Washington Post this is just the early days of figuring out what ot do with Fannie and Freddie. The other options include winding them down completely, and also trying to nurse them back to the way they were before. Though I spoke with an analyst this morning who said to me, ‘we do that, we’re just going to end up with a couple of unsustainable enterprises where the taxpayers are left holding the bag when things go south.’

Chiotakis: All right. Jeremy Hobson, thanks for joining us this morning.

Hobson: Thank you.

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