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Fannie, Freddie Reform Plan Pushed Back

The government has again delayed unveiling its reform plans for Fannie Mae and Freddie Mac in another sign that the firms are too interwoven with current policy to change the status quo.



) -- The federal government has again extended the horizon for meaningful reform of

Fannie Mae



Freddie Mac's


business model, another sign that the firms are too interwoven with current policy to change the status quo and that their problems are too complex to resolve overnight.

Appearing before the House Budget Committee on Wednesday, Treasury Secretary Timothy Geithner said the plan for Fannie and Freddie will not be outlined until 2011. The government will release a set of "principles and broad objectives" sometime this year, according to Geithner, which will be open for public comment.

In late December, the Obama administration said it expected to unveil a Fannie-Freddie strategy as part of the 2011 budget. But the White House subsequently backed off that plan, releasing a budget proposal on Feb. 1 with no mention of mortgage-finance reform.

Some Republican lawmakers have been critical of the delay, which has offered both political opponents and the private industry a chance to put forward their own ideas of reform. Still, there appears to be no consensus on the best path forward and Geithner predicted that the Fannie-Freddie plan will be "a difficult set of reforms" to push through Congress, whose partisan fever has deadlocked other important bills in recent months.

Some liberal lawmakers, including House Financial Services Committee Chairman Barney Frank (D., Ma.), seem to favor a plan that keeps the government deeply involved in housing, and supportive of affordable housing for low-income families. Some conservatives would rather do away with Fannie and Freddie altogether, and let the private market take care of mortgage financing on its own, without a government guarantee.

A mortgage-banking industry group

put forth a plan in September that would split Fannie and Freddie into smaller private entities. That plan would keep the government involved with explicit guarantees, but would not give it outright ownership or control.

Earlier this week, the National Association of Realtors took the opposite tack, suggesting that Fannie and Freddie ought to become nonprofit corporations owned and operated by the federal government.

The uncertainty caused by these widely differing viewpoints has spooked the mortgage market on more than one occasion, sending mortgage rates and bond prices soaring or slumping, depending on the Fannie-Freddie flavor of the day. On Wednesday, Geithner sought to allay fears that the government will entirely dismantle Fannie and Freddie, or dramatically change the way the mortgage market operates.

"It's very important that we make it clear to investors around the world that we will make sure...that those two important government-sponsored enterprises can continue the role they need to play," Geithner said.

Fannie and Freddie have now been in a state of pseudo-nationalism for more than 17 months, since former Treasury Secretary Henry Paulson placed them into conservatorship in September 2008. The firms have pushed forward the government's goals to send mortgage rates down and afford leniency to troubled homeowners, without prioritizing profitability as a purely private entity would.

On Wednesday, Freddie Mac said it lost $21.6 billion last year, following a $50.1 billion loss in 2008. Though the Treasury Department granted Fannie and Freddie unlimited access to capital in December to plug in balance-sheet gaps, Freddie managed to maintain a positive net worth of $4.4 billion as of Dec. 31.

-- Written by Lauren Tara LaCapra in New York