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A new plan of action for Fannie and Freddie?

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Steve Chiotakis: There’s a new plan on the table today to deal with the mortgage giants Fannie Mae and Freddie Mac. The plan comes from California Republican Congressman Gary Miller and it would merge the two government-backed companies into one. So why in the world would you want to make these behemoths even bigger?

Well, As Marketplace’s Nancy Marshall Genzer reports, this new bill is actually aimed at making them smaller.

Nancy Marshall Genzer: The housing market depends on Fannie and Freddie because they buy about half of all the home loans that are made. This new bill would create a corporation like a public utility, held by the government, and would prevent its share of the market from going any higher than 50 percent.

Jamie Gregory is a lobbyist for the National Association of Realtors. He supports the bill, but he says half is still too much.

Jamie Gregory: Ideally, Fannie and Freddie should get back to their historic level of 22, 23 percent of the marketplace.

Arnold Kling is a former Freddie Mac economist. He says the bill is written to benefit special interests, that the new Fannie/Freddie creation would be too lightly regulated, and that Wall Street would find it too easy to saddle the government with the riskiest loans.

Arnold Kling: That would be the most profitable strategy. They would rather have the government take that risk.

Kling says we’d be better off keeping Fannie and Freddie as they are and regulating them properly, or disbanding them altogether.

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

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