Bills to Eat Away at Fannie and Freddie Unlikely to Pass

By Kyle Chezum Updated on 4/1/2011

At this point, everyone knows that Fannie Mae and Freddie Mac, the two massive government entities that hold much of the nation's mortgage risk at present, will need to back away from the industry and turn control of mortgages back over to the private sector.  What no one can agree on is how this should happen, how soon this should happen, and how much it should happen.

Just days ago Republican leaders in both the House and the Senate unveiled at least eight bills that would lop of pieces of Fannie and Freddie and put money and power back in the hands of the private sector.  Though this approach has been labeled a "piecemeal" one due to the slower timeline allowed when contrasted against speedier Fannie and Freddie proposals offered by Republicans in the past, many have criticized the slew of bills as being counterproductive.  Critics claim the bills will do too much too fast and destabilize the housing market further.

Edward DeMarco, the acting director of the Federal Housing Finance Agency, claims acting too fast will waste taxpayer dollars.  If Fannie and Freddie are forced to reduce their mortgage holdings by more than 10% each year, the firms may have to sell assets that, if held longer, would have retained more value.  Thus a swift wind down may cost taxpayers more money than they have already lost in the mortgage meltdown.

Republicans insist the bills will, at least, make a statement regarding the direction the economy needs to go.  Christopher Papagianis, managing director at Economics21, says, "[They] would send an important signal to the market so that private capital can come in."  This is probably the best Republicans can hope for at this point, as the Senate is controlled by Democrats who likely won't allow many of these bills to pass.