WSJ reports that Fannie and Freddie have written a memo stating that an overhaul of the mortgage market that excludes them would (surprise) increase the cost of a mortgage. With the midterm elections this year and lack of consensus even among Republicans, the smart money would bet that no reform bill gets passed this year. The WSJ link contains links to download the memos. The Senate bill being considered by the Senate Banking Committee would replace Freddie and Fannie with a system whereby private companies can package mortgages into federally insured mortgaged backed bonds. I have not yet studied the bill so cannot comment in a substantive manner but conceptually I do not see how the proposal can be better than what we have today. I am not saying that Fannie and Freddie are faultless for their roles in the credit crisis but a solution of a distributed system but with the federal government still on the hook seems like it could create as many problems as it solves.
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