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When Fannie and Freddie die

By Judy Martel · Bankrate.com
Tuesday, March 13, 2012
Posted: 5 am ET

Dismantling mortgage giants Fannie Mae and Freddie Mac, which together guarantee approximately three-quarters of all new home loans, is turning out to be a complicated operation. On the one hand, Congress wants to shut down the agencies and get the government out of the mortgage business. On the other hand, it has to be done in a way that doesn't further harm the ailing housing market.

Last month, the regulator of the two agencies, the FHFA, or Federal Housing Finance Agency, proposed a gradual process for closing the two agencies, while also developing a new market for mortgage-backed securities for the private sector. Edward DeMarco, acting director of the FHFA, cautioned that without encouraging private investment in new securities, mortgage interest rates will increase and loans will become harder to obtain.

Fannie Mae and Freddie Mac are 80 percent owned by taxpayers and have received more than $180 billion in bailout money. Though some in Congress have pushed for the two agencies to reduce struggling homeowners' mortgage payments to below the amount owed on the loan, DeMarco has said that will only lead to more taxpayer losses.

Treasury Secretary Timothy Geithner has promised to provide more detail on the Obama administration's plan for reforming the housing finance system sometime this spring.

How do you think the government should get out of the mortgage business, and does it make more sense to rip the bandage off quickly or conduct a gradual closing process?

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