What should the government do with Freddie Mac and Fannie Mae?

A public debate was opened last Friday by Federal Reserve Chairman Ben Bernanke over what should happen with Freddie Mac and Fannie Mae once the financial crisis is over.

Last month both Fannie and Freddie were taken over by Uncle Sam after Bernanke said they were operating in “an unsafe and unsound manner”. In a speech Bernanke made via satellite to a conference regarding the meltdown in the mortgage industry he said that a debate over alternative organizational structures for Fannie Mae is worthwhile.

According to Bernanke, both Fannie and Freddie have been allowed to continue to sell the securities even though the market for mortgage-backed securities has declined massively on the wake of the subprime-mortgage crisis.

It is expected that the government would have to issue a guarantee of some sort if public mortgage-securities business is to recover. Then tax-payers involvement will become an issue and will need to be dealt with.

Source: Marketwatch

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