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Four Ways to Start Fixing Fannie And Freddie
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Senior Features Editor
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CNBC.com Mortgage Meltdown |
With major housing finance reform now unlikely until 2011, there’s little that can be done to stop the massive losses at mortgage giants Fannie Mae [FNM
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] and Freddie Mac [FRE
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], say analysts.
But there are some small fixes can be made before their future shape and size—or even continued existence—is determined.
1. Make A Timeline
Analysts say policymakers need a detailed time line with a hard deadline to avoid anymore postponement of the hard choices and difficult solutions needed to deal with a financial time bomb that has been ticking since the summer of 2008.
Fannie and Freddie were taken over by the government in September 2008 after the housing market imploded and the mortgages and mortgage-backed securities they held as collateral for their financing operations soured.
Since then the government has supplied about $125 billion in taxpayer funds to keep the institutions operating and the mortgage market functioning. The amount of financial aid is certain to rise, analysts say, and could wind up costing taxpayers $200-$400 billion.
Despite those mounting losses, neither the Obama administration nor the Democrat-controlled Congress have been willing to include Fannie and Freddie in a sweeping financial reform plan. Just this week, Congress voted to study the problem rather than move on it, putting a final resolution years off.
Still, analysts argue that some steps can be taken now. And the first is to list what the steps are and when they can be made.
"There's a giant dead-weight loss that can only be covered in one or two ways," says Alex Pollock of the American Enterprise Institute and a former CEO of the Federal Home Loan Bank of Chicago. "Either the debtholders take a loss or the taxpayers do."
2. Put Them on the Budget
That choice will be much more obvious, some argue, if Washington puts the balance sheets of the two firms on the federal budget.
"The loss should be accounted for," says Mar Calabria of the Cato Institute, a libertarian think tank, and a former senior Senate aide. "You're not changing the structure but you are giving some transparency."
Others worry that such a move could backfire.
"It effectively brings them further into the government fold and represents a new and more explicit nationalization," says independent bank analyst, Bert Ely.
A change in the firms' budget status might prompt swifter government action beyond what has happened to date. To date the only concrete step is an item in the financial reform regulation legislation calling for a study of the firms by Jan. 31, 2011, a year the Obama administration says it will offer its recommendations.
Data is a real-time snapshot *Data is delayed at least 15 minutes
