The two-headed mortgage lending monster known as Fannie Mae and Freddie Mac will more than likely undergo serious reforms next year, according to U.S. Treasury Secretary Tim Geithner.
The pair of GSE’s, both of which required federal bailouts in 2008 after faltering as a result of the housing collapse, are headed for certain changes when the Obama administration puts forth a plan to overhaul the industry in early 2011.
Geithner told a panel of executive lending officers on Tuesday that the administration “will not support returning Fannie and Freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support.”
“We will not support a return to the system where private gains are subsidized by taxpayer losses,” he added.
Before being placed under total government control in 2008, the twin lenders ran into trouble, stemming mainly from involvement in the subprime mortgage movement in the early 2000’s. Speculators argue that entering that market under federal directives to increase home ownership is what caused Fannie and Freddie to become vulnerable when the skyrocketing housing bubble burst around 2006.
Geithner told the panel that he and Department of Housing and Urban Development (HUD) Secretary Shaun Donovan have been presented with a wide array of options for reforming the system, from nationalization of the lending market to complete government withdrawal.
However, Geithner admitted that as of today, a solution has not yet been reached.
“It’s safe to say there’s no clear consensus yet on how best to design a new system.”