Fannie And Freddie Left Holding WorthlessPaper

WASHINGTON - (09/19/05) -- Lobbyists for Fannie Mae and FreddieMac were reported last week to be floating a proposal to Congressto allow it to manage the billions of dollars in uninsured homeloans that were sunk by Hurricane Katrina in exchange for someconcessions on the pending bill to reform the secondary mortgagemarket. Under one proposal, Fannie and Freddie would buy theunderwater loans and put them on their balance sheets, then managethe portfolio like a Resolution Trust Corp., organized to resolveall the bad S&L loans. One of the concessions Fannie andFreddie were reportedly floating was for Congress not to pas theproposed caps on their portfolios. The reform bill, which the Housemay vote on as early as this week, has become one of the majorvehicles Congress hopes to address the Hurricane Katrina disaster.Last week lawmakers proposed that a multi-billion-dollar affordablehousing fund Fannie and Freddie would create would be focused onrebuilding damaged housing in the hurricane-stricken areas. Bothsecondary market players are also believed to be holding much ofthe $36 billion or so of mortgages that may be affected by thehurricane.