""Fannie Mae"":http://www.fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/ entered federal conservatorship in 2008, as lawmakers and presidents stepped in to stymie a freefall for the nation's largest mortgage companies, just as words like _subprime_ and _systemically important institutions_ gained traction for the public.[IMAGE]
Four years and roughly $180 billion in taxpayer funds later, old hands, regulators, and freshman lawmakers alike struggle with a vexing riddle.
The question: How can a system polarized by politics safely shrink companies responsible for more than $11 trillion in mortgages without blowing a still-unsteady recovery ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô and what will it mean for the future of mortgage finance?
House Budget Committee Chairman ""Paul Ryan"":http://paulryan.house.gov/ (R-Wisconsin) recently threw in his two cents by offering a House budget that called for an end to conservatorship and the return of free-market practices but skirted specific recommendations.
The proposal rhetoric joined calls for action from the campaign trail, where GOP presidential hopefuls like former Massachusetts Gov. ""Mitt Romney"":http://www.mittromney.com/ and House Speaker ""Newt Gingrich"":http://www.newt.org/ slung mud at the GSEs - nowhere else more than Florida, where the latter's contract with Freddie Mac came into play.
""It's easy to say Fannie and Freddie are mistakes and let's get rid of them. There's broad consensus there,"" says ""Lawrence J. White"":http://people.stern.nyu.edu/lwhite/, a professor of economics at ""New York University"":http://www.nyu.edu/ and onetime member of the now-extinct Federal Home Loan Bank Board. ""The difficulty is ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô what replaces them?""[COLUMN_BREAK]
As if in answer, numerous blueprints linger in the public space, each with their own versions of a housing market without Fannie Mae and Freddie Mac.
The more favored one of the many ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a bill introduced last fall by Rep. ""Scott Garrett"":http://garrett.house.gov/ (R-New Jersey) ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô essayed for gradual phase-outs for the GSEs, along with new servicing and regulatory responsibilities for the ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA).
It also argued for doing away with the implicit federal guarantee for 30-year fixed-rate mortgage products ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a sacred cow as important for some as the mortgage interest rate tax deduction or Social Security.
The National Association of Home Builders recently seconded an open-ended proposal from the FHFA with blueprints for new securitization measure under the auspices of federal agencies and a patchwork of responsibility shared by Housing Finance Entities like the 12 Federal Home Loan Banks.
In its proposal, the FHFA likewise highlighted the need to preserve a relationship between homeowners and investors but left the decision-making up to Congress.
""Unless you have something backed by the U.S. government, foreign investors are not going to buy mortgage-backed securities,"" says ""Peter Wallison"":http://www.aei.org/scholar/peter-j-wallison/, a vocal critic of the GSEs and research fellow with the conservative-leaning ""American Enterprise Institute"":http://www.aei.org/.
He adds: ""But as long as we have mortgage-backed securities backed by the U.S. government, investors here will not buy them.""
White tells us that it is unlikely any presidential candidates will tackle reform for the GSEs, even in a heated election year.
""There probably are people certainly in the Obama administration who are looking ahead,"" he goes on. ""Once someone gets the Republican nomination, someone in the campaign will start thinking about what to do with Fannie and Freddie when we win the election and ask: What's our post-election plan?""
That may not be far off the mark. Experts say the House Republican budget is unlikely to clear the Democratic Senate or the White House.