Long Overdue Reform for Fannie and Freddie?

Lost among all the debate in Washington over the stalled financial reform legislation has been any discussion about the major role of Fannie Mae and Freddie Mac (which I have previously commented on) in the banking collapse.

Now, according to the Wall Street Journal, it looks like there is a push by John McCain (R-AZ), Richard Shelby (R-AL), and Judd Gregg (R-NH) is to put the mortgage giants on the table for reform. It is about time. After all, as the article points out “The duo are by far the biggest losers of the entire financial panic—bigger than AIG, Citigroup and the rest.”

McCain and Shelby are pushing to make several, long-overdue reforms part of any financial reform package:

The amendment mandates that the current government conservatorship of Fan and Fred will end within 30 months. In the meantime, the companies will have to reduce their mortgage portfolios by 10% each year. If the terrible twosome can’t stand on their own after conservatorship, they would then go into receivership and be liquidated.

If they can survive on their own, they would have three years before the expiration of their federal charters, during which time they would have new operating restrictions. Messrs. McCain, Shelby and Gregg would repeal the affordable housing goals previously legislated for Fan and Fred and which contributed to their terrible mortgage bets, and the companies would have to reduce the mortgage assets held on their books by nearly 50% within two years and raise their capital standards.

Fannie and Freddie would also have to start paying state and local sales taxes, lose their exemption from full registration at the Securities and Exchange Commission when they issue securities, and start paying fees to repay the taxpayer for the value of federal guarantees. The $400 billion limit on taxpayer assistance would be reinstated, and for as long as they are in federal conservatorship or receivership, they would have to be included in the federal budget.

This type of reform should be a significant part of any financial reform. Only time will tell if the Obama Administration is serious about preventing the next economic crisis or not.

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One Reply to “Long Overdue Reform for Fannie and Freddie?”

  1. elimination of Fonnie and Fraudie is necessary. Let banks perform these services, and if it costs the users more, so be iit.

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