Obama administration officials are hard at work preparing a white paper on overhauling the nation's housing finance system. Next week they are expected to make a major announcement about Fannie Mae and Freddie Mac, the two mortgage companies the government took over in the summer of 2008.
Officially, no policy decisions have been made.
If we had to bet, though, we'd bet that the Obama administration will propose folding Freddie Mac into Fannie Mae.
A merger of Fannie and Freddie’s would likely allow for cuts to personnel and overhead, since the two companies have identical and redundant functions. It would also be a major, fundamental change that would allow the administration to claim it was not allowing the two companies to continue as they had before they failed.
Recall that the purpose of having two distinct entities was to force them to compete. Fannie Mae originally had a monopolistic lock on the secondary mortgage market. Two years after the Johnson administration took Fannie off-balance sheet in 1968, Freddie was created to provide competition.
But with both of the mortgage companies once again under government control, it makes sense to combine them.
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