return for shouldering the interest costs on the Fico bonds, banks want to eliminate the charter. In recent weeks, Jonathan Fiechter, acting director of the Office of Thrift Supervision, has spoken out against such a move. Thrifts may have a smaller role in the mortgage market than they once did, but they are still significant players, Mr. Fiechter has argued. One of their functions, Mr. Fiechter said, is as niche lenders who make loans that Fannie Mae and Freddie Mac won't buy. He recently spoke about the issue to American Banker. Q.: Do we still need a separate thrift charter? FIECHTER: If we were starting from scratch today, it's not clear that we would go about setting up limited-purpose depository institutions. But we already have a trillion-dollar industry that is devoted to providing housing and finance. So I guess the more interesting question is, what's the future of today's thrift industry? Having spent 25 years in Washington, I'm not so certain that the federal government is the place that I would lodge that decision with. Rather, I think whether or not individual mortgage lenders do well probably should best be left up to the market. If over time the consuming public finds that they can get better service, better pricing, more products for amenities other than at thrift institutions, I think what you'll see is the industry slowly fade away. Q.: What happens to the mortgage market if thrifts go out? Will banks pick up the slack? Do you think Fannie and Freddie will grow? FIECHTER: It really depends on how you define thrifts going out of business. If you want thrifts to look like commercial banks - and hold a quarter of their assets rather than 75% in mortgage-related product - that means there's half a trillion dollars of credit that someone other than thrifts has to make up. I think Fannie and Freddie are well positioned to take up some of the slack. The 20% of the market that thrifts have is made up of niches outside the conventional market that the combination of Fannie, Freddie, and the mortgage bankers have taken over. So the 20% is not 20% of every type of mortgage product. Fannie and Freddie clearly dominate in the conventional, fixed-rate business. Thrifts have the other ends. You take thrifts out, I think you really hurt those other ends. At this stage, the thrift industry appears to be holding its own. (See accompanying chart.) The last couple of years have been very, very strong years for both banks and thrifts. If we have a downturn, if the interest rates flatten more, then there may be a natural evolution towards more of a single charter. Q.: You said earlier that you would like to see a study of the effects on the mortgage market of the growing share of Fannie Mae and Freddie Mac. What do you think such a study would find? FIECHTER: What comes to mind is if we have two agencies designing products, they may not think of quite as many different options as if you had three or four. It was in the early 1970s that Fannie Mae ran into a lot of trouble. In fact, some would argue that Fannie Mae was close to being insolvent back then. I think Fannie Mae and Freddie Mac are extremely well-managed today. But with any entities, you can always have a rogue trader. And if what we're doing as a country is growing more and more reliant on those two agencies to provide residential mortgage financing, that's great, as long as those two agencies do very well. If one or both of them stumble, they both make a mistake, then I think we're probably worse off.

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