Fixing Fannie Mae and Freddie Mac

(CBS)  The steep falloff in housing sales -- which reached a 15-year low in July -- highlights the degree to which the government has been propping up the housing market, and the two biggest pillars of that support system -- Fannie Mae and Freddie Mac -- are facing a crisis.

In Fla. this month, Fannie Mae auctioned off nearly 100 foreclosed properties. In Chicago, Freddie Mac was offering help to homeowners in distress, reports CBS News business correspondent Anthony Mason.

The two troubled mortgage giants seized by the government nearly two years ago now own or guarantee nearly 31 million home loans, 56 percent of all American mortgages, and they're bleeding billions in losses.

Existing Home Sales Sink to 15-Year Low

"Fixing this system is one of the most consequential and complicated economic policy problems we face as a country," said U.S. Treasury Secretary Timothy Geithner.

The Treasury kicked off the debate over how to fix Fannie and Freddie at a Washington Conference last week. The stakes are huge. Even now Fannie, Freddie and the Federal Housing Authority are propping up the housing market.

"More than nine out of every 10 mortgages originated today are filtered through one of those three institutions," said Mark Fleming, chief economist at CoreLogic.

The government has already pumped nearly $150 billion into both to keep them afloat. Some say taxpayers could end up with a $1 trillion bill.

"Fannie Mae and Freddie Mac are going to incur the losses of our neighbors who default on their mortgages," said Shari Olefson, author of Foreclosure Nation.

Set up by Congress as private companies to expand home ownership, Frannie and Freddie buy up mortgages from lenders so those banks have money to lend again. But they're now holding $210 billion in bad loans. And the government, which always unofficially backed Fannie and Freddie, is stuck with them.

"It goes to the very heart of the American dream," said Olefson. "It really goes to the very heart of what role should government play, if any, in housing."

The Treasury aims to come with a plan for Fannie and Freddie by January, but reforming them will be difficult while the housing market is still so fragile.

[jguy1957]

All these comments are valid. Fannie and Freddie were and are cash cows for Democrats friends and supporters. The rules were changed to force subprime loans when people should not have met normal loan requirements. Now Barney Frank, previously a big Fannie/Freddie supporter, is now saying maybe its time for hem to go (probably to save his political life). This is some six plus years too late, and he is the one that should go. Remember in November: incumbents = this mess.

[davidbthelen]

In many countries, home prices are increasing. But why? For example, in Australia, sales taxes are exempt from necessities, like car repairs. We also have a marriage penalty on our income taxes. I feel our need to pay for necessities with our credit cards is not helping the housing market. The higher your credit card balance, the lower amount of house you can buy.
This places downward pressures on our housing market.
CBS News, will you do a report why housing prices are increasing in many countries? Perhaps if we study everything from tax policies to other ways they do things differently, we may find answers to turn our housing market around. I feel it is going to take a strong housing market for our economy to turn around...

[JustYourAverageReader]

How about if we fix our government first? Do not vote for any incumbents this year and 2 years from now and 4 years from now.

[retm-w]

Look at what the CEO's at fannie and freddie made, and they're crying broke. Time to cut the CEO's pay and no bonus's. How can you give them a bonus when they've done nothing to deserve it.

[1renegade]

Let fannie and Freddie fold. Some one will by up the assets and at least the taxpayers won't be throwing away good money after bad.