source: Bloomberg News
(Corrects Senator Johnson’s state in 13th paragraph.)
The consensus in Washington that Fannie Mae and Freddie Mac should be dismantled is weakening amid opposition from hedge funds, regional banks and others who could benefit if the companies survive in some form.
President Barack Obama and lawmakers from both parties have called for the two mortgage-finance companies to be replaced by a new U.S. housing system. While the official position hasn’t changed, a bipartisan group of U.S. senators writing legislation is grappling with how to ensure that changes to Fannie Mae and Freddie Mac don’t disrupt the recovering housing market.
Some Democrats said they are leery of engineering a switch that would depend on private entities to risk their own capital on home loans.
“I’m not sure that eliminating the GSEs totally makes sense, as some have suggested, and so I have an open mind on it,” Robert Menendez of New Jersey, a Democratic member of the Senate Banking Committee, said in an interview last week. His comments came after Senate Majority Leader Harry Reid, a Nevada Democrat, said in August that the companies shouldn’t be dismantled.
Since they nearly collapsed during the 2008 credit crisis, the two government-sponsored enterprises, or GSEs, have drawn $187.5 billion from taxpayers and have been considered too politically toxic to be preserved. While the U.S. holds controlling stakes, the outcome will affect private investors including hedge funds Perry Capital and Paulson and Co., which have accumulated preferred shares and have spent months lobbying for Fannie Mae and Freddie Mac to be recapitalized.