Four Proposals for Reforming Fannie and Freddie

The government is wrestling with what to do about Fannie Mae and Freddie Mac, which have needed a combined $148 billion since the government bailed them out two years ago.

There are many ways to restructure the system. Here are four that have the most support:

1. Fully private system. Eliminate Fannie and Freddie and let private lenders take over. The problem is that the market for mortgage securities issued without government backing is small – perhaps, nonexistent.
2. Semi-private system. Dissolve Fannie and Freddie and turn their function over to private companies that would pay for the right to issue government-backed mortgage securities. Small banks don’t like this plan because it would inevitably increase the role of the largest banks.
3. Hybrid system. Fannie and Freddie would compete against other companies that would also issue government-backed mortgage securities.
4. Government-run system. Fannie and Freddie would become part of the government. This is unpopular because it would expand the ballooning federal debt.

Source: Associated Press, Alan Zibel (08/09/2010)

Keep the faith..........