No New Plan in Sight for Fannie, Freddie

NEW YORK (TheStreet) -- In an era where politicians use financial reform as a vehicle to get into the spotlight, it's odd that the two entities which have connections to $5.66 trillion worth of mostly residential mortgages aren't being talked about much at all.

Fannie Mae(FNM) and Freddie Mac(FRE) appear to have been swept under the rug of financial reform -- perhaps because the task of restructuring them is so enormous and complex. Although the White House has promised to outline a plan for Fannie and Freddie within the next couple of weeks, in the federal budget proposal, Treasury Secretary Timothy Geithner recently acknowledged that the process probably won't begin in 2010.

"It's just a complicated thing to get right," he said in a PBS interview that aired last week.

Barney Frank (D., Mass.) sent shock waves through the bond markets the following day by saying the House Financial Services Committee, which he chairs, will probably recommend "abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system."

Although "abolish" is a scary word, it's unclear why it frightened mortgage-bond investors so much: That's pretty much the same vague notion politicians have been tossing around since Fannie and Freddie were put into conservatorship 16 months ago. Frank didn't provide any specifics about what they may look like going forward, and said changes -- whatever they may be -- won't be coming any time soon.

In an effort to find out what's going on behind the scenes, or what options the Beltway appears to favor, I reached out to half a dozen key financial legislators or legislative aides, as well as a lobbying group, and several industry players over the past month. The response was something like a box of crickets: Only a few responded to say they hadn't heard anything, and none wanted to go on record as saying so.