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Fannie and Freddie one year later

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Tess Vigeland: It’s economic crisis anniversary time. One year ago today the federal government seized Fannie Mae and Freddie Mac. Well, here we are on September 7th, 2009, and how are Fannie and Freddie doing?

Marketplace’s Jeremy Hobson has some answers from New York.

Jeremy Hobson: When the government takeover was announced, this was Treasury Secretary Henry Paulson’s rationale:

HENRY PAULSON: Fannie Mae and Freddie Mac are critical to turning the corner on housing.

Fannie and Freddie own or guarantee almost $5.5 trillion worth of mortgages. The two companies buy loans from banks, package them up, and sell them to private investors.

Jaret Seiberg is a policy analyst at Concept Capital’s Washington Research Group. He says one year later, we’re in a holding pattern when it comes to Fannie and Freddie.

JARET SEIBERG: We’re waiting for the administration to figure out what they want to do with these two enterprises.

The government has already pumped almost $100 billion into Fannie and Freddie. And the Treasury Department stands ready with another $300 billion just in case. Even as the economy recovers, Seiberg says pulling out of Fannie and Freddie is becoming harder because many private lenders aren’t handing out mortgages like they used to.

SEIBERG: Fannie and Freddie have become even more important in the last 12 months. As bad as the financial situation in this country got, it would have been infinitely worse if Fannie and Freddie weren’t there providing the cash needed for the average person to get a mortgage.

When I told banking analyst Bert Ely that I was doing a story about Fannie and Freddie one year after the government takeover, this was his reaction:


He says that because he thinks it’ll be years before the government decides what to do with Fannie and Freddie. At least, he says, until the housing market rebounds from coast to coast.

ELY: We don’t have a crisis. They’ve been stabilized. There is no pressing need to do something at this time. But also, I would say, there is no consensus at all over what to do with them in the future.

The ideas being floated by the Obama administration include creating a good bank-bad bank situation, where the bad assets would be guaranteed by the government and the good ones would attract private investors. Some are suggesting shrinking Fannie and Freddie, or even shutting them down entirely. The administration is expected to unveil a plan in February.

In New York, I’m Jeremy Hobson for Marketplace.

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