With the ink still wet from President Obama's signature today on the new Healthcare Bill, Congress began debate on how to replace Fannie Mae and Freddie Mac, which are the two mortgage giants that nearly collapsed at the start of the financial meltdown sending the nation into a deep recession.
Back in September of 2008 the government took over control of both Fannie Mae and Freddie Mac. These two giant companies purchased home loans, packaged the loans into investments and then guaranteed them against default. Over the last 18 months the government has poured $126 billion into the companies to keep them from folding.
Today, House lawmakers began to take steps toward figuring out where to go from here and have held their first hearing on how to go about restructuring the mortgage system in the wake of the current financial crisis. Right now the market is being supported by three government programs: Fannie Mae, Freddie Mac and the Federal Housing Administration.
Last year, Fannie Mae and Freddie Mac backed close to 70 percent of all home loans and they also manage the Obama administration's $75 billion loan modification program.
Chairman of the House Financial Services Committee, Barney Frank, said recently that there is a consensus about replacing Fannie and Freddie, but there has been little agreement on how to do it.
Obama officials have given very few details on their long-term strategy on how to deal with the issue since taking over Fannie and Freddie. In the meantime, next month officials plan to seek comments from the public on a list of questions to be published.
Treasury Secretary Timothy Geithner said, "We can start that process in earnest, but, I don't see why this should take years." Geithner feels that it should only take several months to develop the administration's plan.
Republicans feel that the government's push to expand homeownership through Fannie Mae and Freddie Mac put the nation in its worst recession since the great depression and want the government to eliminate their investment as soon as possible.
The National Association of Realtors supports the preservation of Fannie Mae and Freddie Mac, but only as nonprofit government authorities without private shareholders.
Despite the fact that many want to eliminate Fannie Mae and Freddie Mac investors are still nervous. They want to buy mortgage securities that carry a government guarantee either through the FHA or by Fannie Mae and Freddie Mac.
David Stevens, the FHA's commissioner, recently met with a group of international bankers who asked very pointed and difficult questions about what the U.S. government was going to do to bring back their trust because many of them were burned after buying mortgage securities with triple-A ratings that turned out to be nothing more than junk.
In response Stevens said, "We are at the point right now where no one trusts the American housing finance system."