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Obama Needs to Fix Fannie and Freddie Now

NEW YORK ( TheStreet) -- The fate of Fannie Mae (FNMA), Freddie Mac (FMCC) is the most important national issue being avoided in Washington right now.

It's time for President Obama to push forward a serious discussion on the future of the two government sponsored enterprises -- which are wards of the state to the tune of roughly $185 billion and counting -- or the federal cash drain will continue to be a growing albatross on the U.S. economy for decades to come.

President Barack Obama

The two government sponsored enterprises, or GSEs, are still publicly traded companies, although both were placed under government conservatorship by their regulator, the Federal Housing Finance Agency, of FHFA, in September 2008.

While members of Congress enjoy using Fannie, Freddie and their regulator as pincushions to score cheap political points, they have let several years go by without a serious discussion on a way forward for the two mortgage giants.

Fannie and Freddie continue to hemorrhage cash, while increasing their government borrowings. Fannie posted a third-quarter net loss of $5.1 billion and borrowed an additional $7.8 billion from the U.S. Treasury, bringing the government's preferred stake in the company to $112.6 billion.

Freddie Reported a $4.4 billion third-quarter net loss, with additional government borrowings of $6.0 billion, to bring the government's preferred stake in the company to $72.2 billion.

The FHFA on Oct. 27 projected that at the end of 2014, "cumulative Treasury Draws (including dividends)," would "range from $220 billion to $311 billion."

In a letter to a group of senators following an outcry by Senator John McCain (R-Ariz.) over $12.9 million in bonuses paid to executives of Fannie Mae and Freddie Mac, FHFA Acting director Edward DeMarco said his agency was mandated by law "to rehabilitate the Enterprises as private firms," and explained that the executives of the two firms "are not public employees, and FHFA has used market compensation measures to target executive compensation at or below the median of comparable private sector positions at financial institutions roughly similar in size and/or complexity as the Enterprises."

DeMarco hopes to recoup some of the GSEs' losses. The regulator in September sued 17 large banks -- including Bank of America (BAC - Get Report), JPMorgan Chase (JPM - Get Report), Goldman Sachs (GS), Morgan Stanley (MS - Get Report), and Citigroup (C - Get Report) -- to demand full rescission and recovery of losses sustained by the GSEs from the purchase of nearly $200 billion in mortgage-backed securities from the banks.
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