Fallout Continues Over Fannie And Freddie

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The controversy over Fannie Mae and Freddie Mac continues to expand by the day, with the latest manifestation being efforts announced last week by the Department of Housing and Urban Affairs to better document the two companies' efforts to comply with their requirements to finance affordable housing.

That followed an announcement by the Shadow Financial Committee, a group of academics pretending to be financial regulators, calling for full privatization of the two government sponsored enterprises.

In its announcement, HUD said it is seeking to clarify and improve its ability to monitor the accuracy of reporting by Fannie and Freddie to make sure the two secondary mortgage market giants are meeting their housing goals, as required under their GSE charters. The problem with this, as is plain when Fannie and Freddie issue regular boasts about their contributions to affordable housing, is the term continues to be ill-defined. HUD wants to rectify this by lending a more clear definition.

With all of Washington officialdom preoccupied with the war in Iraq, the travails of the two mortgage companies have become one of the only diversions for Congress, even while legislation to tighten oversight of the two mortgage giants is dead on the vine. The two companies, which field some of the most powerful lobbies on Capitol Hill, and their opponents, also powerful lobbying forces, have succeeded in tying up legislation in knots, which will take lawmakers until after election day to unravel.

But the proposal by the Shadow Financial group, is one that may have growing support, both in Congress and in the White House. The full privatization of the two companies, both stockholder owned but nominally supported by the federal government, also has support on both sides of the political spectrum, Republicans and Democrats. It would mean that the implicit government guarantee of Fannie and Freddie debt, through the guaranteed line of credit with the Treasury, would be eliminated, as well as exemptions from local taxes. This proposal also is not likely to be passed any time soon, but as the debate expands on the issue, it will probably gain momentum.

As always with Washington-type controversies, the expanding investigations and carping on Fannie and Freddie are chipping away at the reputations and credibility of these two important engines of the housing market, and giving increasing fodder to their critics.

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