"Clearly there is movement in Congress to do something about the GSEs. The problem is on one hand there is a desire to reform and on the other, desire to not affect the prevailing mortgage rate," he says. A 50-to-100-basis-point increase "is not palatable" to most policymakers.
Liberman believes that Fannie Mae and Freddie Mac as they exist now are actually delivering well on the promise of improving access to homeownership. He is not sure that they should be wound down, especially if the government still wants to promote homeownership.
"We have two very profitable entities that serve their purpose," he said. "We had a problem four years ago. Not today. Looking backwards is a wrong way to solve this."
According to Liberman, Congress is seized with the idea of winding down the giants but they have done a poor job of explaining what the overhaul of the mortgage finance system would mean to borrowers."Consumers and citizenry do not understand how the debate is being framed now. They are duped into supporting something they don't fully understand." Liberman is not the only one arguing that Fannie Mae and Freddie Mac should be kept alive. Michael Kao, co-founder of hedge fund Akanthos capital, is one of the early investors in the junior preferreds of Fannie Mae and Freddie Mac. He advocates returning the GSEs to private hands in a General Motors (GM) style recapitalization, where senior preferred shares and old preferred stock are converted into common shares and sold to the public. The newly private Fannie and Freddie simply need to increase guarantee fees further to entice private capital. "The road to privatization