Freddie and Fannie have to shape up as outlined by Geithner

Tim Geithner, Secretary of the Treasury, recently said the mortgage industry has to drastically change at a recent press conference. It was not a regulatory or lawful order, but rather a statement of purpose. It is anticipated he will be telling Fannie Mae and Freddie Mac to shape up in the next year or so or face the consequences. Geithner also made it clear the U.S. cannot afford to have to bail them out again and that they were too aggressive in taking on risk.

Geithner unclear on how to proceed

There is not a plan for what to do with Freddie Mac and Fannie Mae. Geithner did, nevertheless, make it patently clear there were some things that would be happening. First, Fannie and Freddie will not be resuming business in the manner they were conducting it before the market meltdown. He also pinpointed irresponsible practices, such as the two mortgage houses trying to take the bulk of the market from the private sector. According to Reuters, he also pointed out the current housing market was not going to last within the long term.

No outline on how to do it

Housing industry insiders and economists vary, as they often do, on how best to reform the housing industry. Geithner did support retaining some of the government backing of mortgages, as the richest industrial nations all have something akin to Freddie and Fannie for insuring mortgages against loss. Others, for instance co-founder of Pacific Investment Management, Co. Bill Gross, contend that totally nationalizing the housing industry is needed at this point. Gross argues that the private market in mortgage underwriting and lending can’t make an effective return, according to Businessweek.

Something has to be done regardless of strategy

What to do with Freddie and Fannie is subject to wild speculation, but few think nothing should be done. They have already cost taxpayers $ 150 billion, according to NPR. For the first half of this year, 89 percent of all new American mortgages were securitized by Fannie Mae, Freddie Mac, or Ginnie Mae . Ginnie Mae, as opposed to Freddie and Fannie, is wholly part of the U.S. government, sells mortgage backed securities only if they meet specific standards and doesn’t lend mortgages.

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Reuters

reuters.com/article/idUSTRE67G3E820100817

Business Week

businessweek.com/news/2010-08-17/gross-urges-full-nationalization-of-housing-finance.html

NPR

npr.org/blogs/money/2010/08/17/129250765/socialized-housing-for-everyone