9 Ideas for Fannie and Freddie's Future

NEW YORK ( TheStreet) -- Let the debates over how to fix Fannie Mae ( FNMA) and Freddie Mac ( FMCC) begin.
Freddie and Fannie

Congress is expected to debate the future of government-sponsored enterprises (GSEs) and the future of U.S. housing finance in January.

The Obama administration is supposedly planning to unveil a plan for the overhauled system by the end of this month and once the proposal is in play politicians are likely going to take a whack at it. Analysts have suggested the debate over the two entities could last months. Barclays ( BCS) analysts have estimated that it could take up to 20 years for changes to take effect, once a plan is set in place in order to prevent a shock to the economy.

In addition, the issue of mortgage put backs is sure to draw a lot of debate in the banking industry, especially now that Bank of America ( BAC) has agreed to pay back $2.6 billion in put backs. Several other banks such as JPMorgan Chase ( JPM) could be on the line to buy back as much as $120 billion of troubled mortgage-backed securities.

Politicians are not alone in expressing varying opinions over the future of the GSEs. Several well known investors, as wells as banking, private equity and hedge fund executives have also expressed their views.

Below are some personalities that we think offer or could offer some interesting insight on the future of Fannie and Freddie.

Wilbur Ross

WL Ross & Co.'s Wilbur Ross has not been shy about expressing what he thinks the government should do with Fannie Mae and Freddie Mac. Ross believes that eventually the mortgage market needs to be privatized. He has suggested that the government may want to create one entity or eliminate them all together. The trick is to eliminate the subprime lenders while also appropriating money for low-income mortgages through the normal budget process.

Ross told an audience of insurance professionals at a conference in New York last year that the government must, "absorb the hundreds of billions of dollars of embedded losses because our government would lose its credibility if Fannie Mae and Freddie Mac defaulted."

Ron Paul

Representative Ron Paul, who has cried out to end the Federal Reserve in his book End the Fed has in the past called for the abolishment of Fannie Mae and Freddie Mac.

The irony is that Paul was one of the first politicians to call the housing bubble. In 2002 Paul predicted that the housing market would likely crash due to subprime mortgage risks the GSEs were taking on. He also had proposed the Free Housing Market Enhancement Act, which would have repealed special privileges for housing-related government-sponsored enterprises and was a driving force in believing that a housing bubble would be the eventual result.

"Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie, Freddie, and HLBB have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions," he said in a speech to the House of U.S. Representatives in 2002.

Sarah Palin

Sarah Palin, the 2008 Republican vice presidential nominee -- and potentially a nominee for president in 2012-- claimed in 2008 that Fannie Mae and Freddie Mac had "gotten too big and too expensive to the taxpayers."

That statement was made before the GSEs were nationalized. The quote was criticized by McClatchy because the mortgage giants,"aren't taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization."

Since then Palin has been pretty much mum on the topic; not even tweeting about it on Twitter. She did, however, just buy her daughter Bristol a home in Arizona for $172,000 in cash.

Steve Eisman

Another person who has been quiet on the future of the housing market has been FrontPoint Partners' Steve Eisman. Eisman, the star of Michael Lewis' book, The Big Short, made a fortune betting against housing in the subprime mortgage crisis.

Eisman, no doubt would have an interesting take on the future of Fannie and Freddie. Eisman, however, did not return calls.

As of late he has been taking on the student-debt crisis, American International Group's ( AIG) stock, Genworth's ( GNW) strategy and firing his firm's health care managers and shutting down the $1.5 billion health care fund after three portfolio managers wound up as part of an insider trading investigation.

In addition, it is rumored that Morgan Stanley ( MS) is also selling the hedge fund. Understandably, he's been a tad busy. When Eisman does decide to express his opinion on the future of the GSEs, many people will be paying attention.

Andrew Cuomo

New York Governor Andrew Cuomo has been outspoken against Wall Street and is devising new ways to police Wall Street. Really, is there a firm in New York that Cuomo hasn't sued? Cuomo's experience behind the scenes of the housing crisis is pretty well known. Since 2008 He was U.S. Secretary of Housing and Urban Development during Bill Clinton's second term. Cuomo had a role in pressuring the Federal Housing Administration and Fannie Mae and Freddie Mac to expand home ownership by lowering mortgage standards, allegedly the same ones that apparently caused the latest foreclosure crisis and the housing bubble. Of course, that is up for debate.

Cuomo may be investigating banks for a foreclosure probe, but it would be more interesting to see what he thinks of the future of the mortgage industry. It's likely that when the debates start, Cuomo, who has never been shy, will chime in.

Former Federal Reserve Chairman Alan Greenspan

Alan Greenspan, the former Federal Reserve chairman, has not been a fan of how the government reponded to dealing with Fannie Mae and Freddie Mac so far . Greenspan believes that Fannie and Freddie should be shrunk, recapitalized and broken up or sold off, according to Businessweek

Although, Greenspan has his own critics that believe he should have been tougher in cracking down subprime mortgage lending that may have led to the housing bubble. Greenspan, has denied these allegations, saying that the increased demand for the subprime mortgages was effectively handled.

As of this spring, Greenspan told the Los AngelesTimes that home prices were flattening out and that, "if home prices stay stable, then I think we will skirt the worst of the housing problem."

Greenspan will most likely be more outspoken on the future of the GSEs as the debates start up on where the future of the mortgage lenders lay.

Jamie Dimon

JPMorgan Chase ( JPM)CEO Jamie Dimon, America's most outspoken banker, should have a few things to say about the future of the GSEs, especially since their future will directly affect the way JPMorgan will be writing mortgages and potentially settling mortgage putbacks.

Unfortunately, it seems Dimon has not offered politicians many suggestions as to what he thinks should be done with the GSEs. Of course, it is understandable considering that the bank is working on complying with Dodd Frank financial reform laws and is going to announce fourth quarter earnings.

In the past, when Dimon has advice for politicans he has usually offered it up in long and detailed Op-Eds in the New York Times or The Wall Street Journal. It is likely that when the debates surface, Dimon's thoughts will grace their pages again.

Warren Buffett

The Oracle of Omaha, Warren Buffett has an opinion about everying, and that is why everyone loves him so. Buffett has said that he believes that the Federal Reserved allowed Fannie Mae and Freddie Mac to operate at a 40 to one leverage and that the Fed also guarenteed over 100 times the amount that the lenders had in the bank. He supported the government's takeover of the GSEs.

"I wouldn't change anything with the plan myself," he told Reuters. "It's the best deal and the most sensible deal available now."

Buffett also believes that the housing market will make a rebound in 2011.

Prices will remain far below 'bubble' levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits. Indeed, many families that couldn't afford to buy an appropriate home a few years ago now find it well within their means," Buffett said in an annual letter to shareholders of Berskshire Hathawayaccording to USA Today.

This year Buffett has said there is an inventory overhang when it comes to the housing market and the Fed should offer up incentives to improve the market. However, when it comes to the future of Fannie and Freddie, he has not said much other than the Fed seems to be on the hook to do something. Buffett probably has some insight that he could share with politicians and regulators on how to fix the mortgage markets.

Bill Gross

Pacific Investment Management Co. Bill Gross has said that Fannie mae and Freddie Mac should be fully nationalized . Of course, PIMCO made out when the government did essentially nationalize the lenders. Gross is now also suing banks such as Bank of America that concering the mortgage putback issue along with BlackRock ( BLK).

Gross has also told CNBC that the lenders should ease the requirements for down payments so consumers can afford housing and the sector can start recovery.

In addition Gross told The Financial Times that unless the government continues to back the debt of the mortgage entities, he would have to require consumers to put at least 30 percent down on their homes, which most consumers cannot afford.

--Written by Maria Woehr in New York.

To contact the writer of this article, click here: Maria Woehr.

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