Frank: House committee to propose 'a whole new system of housing finance'

Congressman Barney Frank (D-MA) has the nation's largest mortgage lenders squarely in his sights, and he's aiming to take them down.

Backing what he called a "piecemeal" effort to reform how Americans purchase their homes, the Congressman said on Friday that the House Financial Services Committee, which he chairs, will likely move to abolish Fannie Mae and Freddie Mac, two banks previously considered "too big to fail." In their place, he said, "a whole new system of housing finance" should rise.

Both banks, which the Post characterized as "behind most home loans," were seized by federal regulators in Sept. 2008 and have continued operations essentially as a "public policy instrument," Frank explained weeks ago.

"The remedy here is ... as I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance," he reportedly said on Friday.

In the wake of the devastating economic collapse at the end of the Bush administration, federal authorities claimed that giving almost unlimited public funds to the two banks was the only way of ensuring the stability of the U.S. economy. Peter Wallison, a former general counsel to the U.S. Treasury, estimated at the end of 2009 that taxpayers would lose in upwards of $400 billion for its support of Fannie and Freddie.

"The debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks grew an average of $184 billion annually from 1998 to 2008, helping fuel a bubble that drove home prices up by 107 percent between 2000 and mid-2006, according to the S&P/Case- Shiller home-price index," Business Week added.

"Frank said no decision has been made about what future model he will propose, and aides said no action is imminent," the Post noted. "He has said it's important for the government to continue to play a role in fostering housing affordability."

When the government first seized Fannie and Freddie, Frank suggested that they would remain in federal hands for at least a year, during which time a restructuring would be considered. His comments Friday stand in obvious contrast.

"Some analysts have argued that starting from scratch could create more problems than they would solve, in part because Fannie and Freddie own or guarantee around half of the nation's $11 trillion in home mortgages," The Wall Street Journal reported. The paper quoted Mahesh Swaminathan, a senior mortgage strategist at Credit Suisse, as saying, "When you have $5 trillion of agency mortgages, you can't really orphan them."

Before any significant steps can be taken in that direction, the House Financial Services Committee will first explore its options in meetings with groups like the Center for American Progress and the National Association of Realtors, The Boston Globe added.

The Obama administration is expected to offer its take of the situation in the federal budget, slated to be introduced in February.