Obama administration considers splitting Fannie Mae, Freddie Mac
06 Aug 2009
The Obama administration is planning to split mortgage giants Fannie Mae and Freddir Mac and put their troubled assets in a new federally backed corporation, The Washington Post reported yesterday.
Both the corporations have government charters to buy home loans from banks, which they then repackage and sell to investors. The banks can then use the proceeds to offer more loans to home buyers.
The move to revamp the corporations would dispense with the hundreds of billions of dollars in money-losing home loans owned by Fannie Mae and Freddie Mac.
The government has already pledged nearly $2 trillion, including $85 billion in direct aid, to keep the mortgage market working through the firms.
The bad debts the firms own would be placed in new government financial institutions - so-called bad banks - that would take responsibility for collecting as much of the outstanding balance as possible. What would be left would be two healthy financial companies with a clean slate.
Any final decision would come after talks involving the White House, the Treasury, the department of housing and urban development and the Federal Housing Finance Agency.
