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Fannie and Freddie Reform: Not Now

I'm not sure why exactly the hue and cry is rising from Capitol Hill to K Street to focus attention on Fannie and Freddie and their current state of government conservatorship.

Perhaps its their growth, their growing losses, or their arguable lack of oversight, but here are just a few items that are making PR reps busy around DC this week:

"Republicans Demand Accurate Accounting of Fannie Mae and Freddie Mac

(Washington, DC) – Rep. Scott Garrett (R-NJ) will be joined by other House Republicans to announce the Accurate Accounting of Fannie Mae and Freddie Mac Act in a press conference at 11:30am in HVC Studio A. Garrett will be introducing legislation to compel the Office of Management and Budget (OMB) to prepare President Obama’s budget to accurately reflect the losses sustained by these Government-Sponsored Enterprises (GSEs) since they were placed in conservatorship."

Or this from the Wall Street Journal on a plan from the National Association of Realtors:

"An influential real-estate trade group is calling for the government to convert Fannie Mae and Freddie Mac into federally owned nonprofit corporations that would largely leave the mortgage-finance giants intact. The proposal from the National Association of Realtors is likely to meet stiff political resistance because the companies have required a $111 billion bailout, and lawmakers are under pressure to demand sweeping changes. But the recommendations also underscore how difficult it will be for policy makers to dramatically reshape the two companies, which own or guarantee half of the nation's $11 trillion home loans and are playing a critical role in providing liquidity to the battered housing market."

And then today Freddie Mac reported that it lost $26 billion last year, which brings the tally to $80 billion since 2007. On top of that, a record 4 percent of its borrowers are behind on their mortgage payments.

Still, in testimony to Congress today, Treasury Secretary Tim Geithner said, "We are going to set out broad principles to guide reform, this year, put out broad questions and invite public comment to try and shape legislative proposals next year." I added the italics there, but he added the qualifier: "If we are going to get it right, we must propose changes when we have more distance from the worst housing crisis in history."

The fact of the matter is that Fannie and Freddie are just about the only things supporting the housing market right now.

Yes, you can argue that there is cash on the sidelines, waiting, watching, ready to invest in mortgage backed securities once the Fed steps out of that role, but the entire mortgage market right now is Fannie, Freddie and FHA.

Trust me, I'm not loving how these guys are basically able to spend billions of my tax dollars with no real oversight, no inspector general, nobody looking at who they're hiring, who they're firing and whom they're giving lucrative contracts.

However, given the big government pullout, by way of the ending MBS purchase program and the expiration of the home buyer tax credit, I don't think anyone wants to mess with the mortgage giants right now.

But later, yes, definitely later.

Questions? Comments? RealtyCheck@cnbc.com

  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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