Once a big supporter of Fannie Mae (Stock Quote: FNM) and Freddie Mac (Stock Quote: FRE), Treasury Secretary Tim Geithner and powerful Congressman Barney Frank have turned sour on the two quasi-government mortgage giants.
“We will not support a return to the system where private gains are subsidized by taxpayer losses," Geithner said last week at a White House conference on mortgage.
One thing’s for sure: politicians don’t waste time toying with government-sponsored agencies that bleed taxpayers’ money faster than Uncle Sam can keep up.
According to government estimates, Fannie and Freddie (80% of which is now owned by U.S. taxpayers) blew through $145 billion in taxpayer-funded bailout money. That’s more than the combined amount that was spent to bail out American International Group (Stock Quote: AIG), General Motors (Stock Quote: GM) and Citigroup (Stock Quote: C).
What’s more, economists peg the cost of “fixing” Fannie and Freddie at $3.3 trillion, based on economic assumptions made by both government-sponsored enterprises earlier this month.
But if Fannie Mae and Freddie Mac were to exit the stage, something just as big would have to take their place. According to the Federal Reserve, Fannie and Freddie account for 53% of all U.S. residential mortgages, which has a total estimated value of $10.7 trillion.
So what ideas are cooking on Washington and Wall Street’s back burners in lieu of Fannie & Freddie? Here’s a look:
Disbanding Freddie & Fannie, replacing them with one “super-sized” direct mortgage provider
This is similar to how the government handled student loans, taking over the reins as the largest direct lender in the student loan arena, knocking Sallie Mae and many private lenders off the table in the process. By eliminating the “middlemen (Fannie & Freddie), some government estimates say the government can save $47 billion over the next decade.