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Washington Report: New Congress and Fannie Mae

The Obama administration still has three weeks before taking over in Washington, but the new Congress arrives in town much earlier – January 6th.

Besides a massive economic relief package — which is expected to cost anywhere from $800 billion to $1 trillion and focus on job-producing projects like repairing roads and building bridges – there’s another key item on the agenda: What to do with Fannie Mae and Freddie Mac.

Both companies are mainstays of the U.S. home real estate market, accounting for more than half of all new mortgages. But both have come to financial grief and are operating under ‘conservator’ arrangements run by the federal government.

That’s not technically bankruptcy reorganization, but it’s pretty close.

Given Fannie’s and Freddie’s importance to housing and the mess they’re in, Congressional Democratic leaders have already begun discussions on what to do with them.

Unlike the last Congress, where Democrats ran the committees but didn’t have the votes to overcome Republican opposition in the Senate, this year they pretty much can rule the roost.

So the ideas they’re discussing now have special importance for home buyers, sellers, builders, Realtors, investors and others involved in real estate.

Here’s a quick overview of some of the possibilities:

One option is to combine the two companies into a single financial entity. After all, they both perform similar functions, so why do we need two?

A second option is to slice off the public-service functions of the companies — support for low and moderate income single and multifamily housing — and turn them into some form of federally-controlled corporation.

At the same time, the purely private market operations of the companies could be spun off and sold to private investors. Here we’re talking about buying mortgage bonds and loan pools from banks and other lenders, and trading them.

According to the Washington Post, Lawrence Summers, the former Treasury secretary who’s slated to be President Obama’s chief economic adviser, favors cutting Fannie and Freddie into purely private and public pieces, with the federally-controlled portion assigned the job of guaranteeing mortgage bonds to keep money flowing into the home loan sector.

Still another concept under discussion would to turn Fannie and Freddie into public utilities. That means they’d be like the electricity and water companies — privately-run but serving essential public purposes and heavily regulated to make sure they do what they’re supposed to.

Wherever Congress comes down on all this, one thing’s for sure: Fannie and Freddie are going to look and perform very differently, sooner rather than later.

For taxpayers and borrowers, that probably will be a good thing.

Written by Kenneth R. Harney for www.RealtyTimescom. Copyright