Opinion

Commentary: Fannie Mae and Freddie Mac must change

Left out of the financial reform bill recently passed by Congress was a plan for dealing with the moribund mortgage giants Fannie Mae and Freddie Mac, seized by the government nearly two years ago.

But while the bill failed to reform the two government-sponsored enterprises, Congress told the Obama administration to develop a reform strategy by early next year. That work has now begun.

Any such plan should incorporate at least two features. First, while government subsidies will probably remain a necessity on some level, the reformed market should offer the widest possible scope for the private sector. Currently, the federal government is guaranteeing more than 90 percent of mortgages. The risk to the taxpayer must be scaled back.

Second, any government subsidies for housing should be transparent, easily identified and easily evaluated regarding need and suitability.

At a recent Washington conference involving the major players in housing, there wasn't much consensus about how to proceed. Treasury Secretary Tim Geithner, however, said some kind of continued government guarantee would be necessary for some mortgages.

Currently, private participation in the market is extremely low, mostly because companies can't compete with Fannie and Freddie, which borrow at costs a smidgen above the Treasury and offer low rates. The private sector can't do that.

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