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What’s the plan for Fannie and Freddie?

Nancy Marshall-Genzer Mar 23, 2010

What’s the plan for Fannie and Freddie?

Nancy Marshall-Genzer Mar 23, 2010


Kai Ryssdal: We’ll get to health care, and the new pay patterns on Wall Street in just a sec, but we thought we’d revisit the still fragile American housing market first thing today. We learned this morning that sales of existing homes stumbled once again last month. Prices were down, too. And that tends to drag on the overall economy, of course. But it also lends a certain focus to the grilling that Treasury Secretary Timothy Geithner got today up on Capitol Hill.

The topic at hand was the mortgage industry, specifically Fannie Mae and Freddie Mac. Back in the fall of 2008, you might remember, even before Lehman Brothers went broke, Fannie and Freddie were early winners in the government bailout game. Taxpayers basically own ’em now. Thing is, they’re still not working very well. And Congress wants to know whether they ought to be overhauled or just done away with entirely.

From Washington, Marketplace’s Nancy Marshall Genzer reports.

NANCY MARSHALL GENZER: There are only so many ways to say, “I don’t know yet.” That was Treasury Secretary Geithner’s stock answer today at a Congressional hearing on how to overhaul Fannie Mae and Freddie Mac.

TIMOTHY GEITHNER: Now I have not seen an ideal model yet.

Fannie and Freddie are a funny mix of public and private. They buy up mortgages, giving banks more money to lend. They now own or guarantee about half of all U.S. mortgages — some with a distinctive, subprime stench. Some people say, just abolish Fannie and Freddie.

Karen Petrou is a banking analyst at Federal Financial Analytics. She says that’s just not practical. They’re propping up the housing market. She prefers a middle road. Make Fannie and Freddie like utilities. Privately-owned, but with marching orders from Uncle Sam.

KAREN PETROU: But they’re much better regulated so in terms of activities, pricing and other functions, so that like electric utilities you can be sure the lights stay on.

Banking consultant Bert Ely says the lights can stay on by themselves. The private market can take over. He says investors are already starting to jump back into the mortgage market, leaving Fannie and Freddie to a gentle demise.

BERT ELY: A slow death. Not necessarily painful, but I think a slow fading away.

Economist Karl Case is co-author of the Case-Schiller Housing Index, which measures metropolitan housing markets. Case says Treasury Secretary Geithner is actually right. It’s too soon to know what to do with Freddie and Fannie.

KARL CASE: We don’t know enough about how the housing markets and financial markets are going to evolve over the next year to make a rational choice about what to do with Fannie and Freddie.

Don’t expect a plan from Geithner until next year.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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