Administration Split over Fannie-Freddie Strategy - TheFiscalTimes.com
Administration Split over Fannie-Freddie Strategy - TheFiscalTimes.com by Katherine Reynolds Lewis
My proposal:
The resolution of what to do with Freddie and Fannie should be tied to doing something about the problem of underwater mortgages, if only to correctly value them so that they can be recapitalized in the private market. They cannot be recapitalized at book, but if they are recapitalized at the market value of their holdings, those with underwater mortgages should benefit as well.
Much of these holdings are likely held by the Federal Reserve, which should be the agency of transition, and which hold another large chunk of mortgage paper.
The Federal Reserve should buy Freddie and Fannie from the United States at the value of the underlying assets, and also buy other securities backing underwater mortgages for market value as well. It can then detraunch these mortgages and adjust their value at the consumer level so that borrowers can sell if they need to, with clawback provisions if they make a profit. This will also improve their liquidity and lift the economy out of recession rather quickly.
The Fed can then break up and sell Freddie and Fannie as regional entities, with one spinoff of each containing the loan portfolios held in each Regional Federal Reserve Bank. This will help the Fed recover some of its losses, with any profit turned back to the Treasury.
With Larry Summers gone, this plan has a much better chance of success, provided it gets a thorough look. Something like this is essential to defuse the mortgage crisis in time for the 2012 election. There is not nearly enough time to let the market readjust in time for Obama to benefit if noting else is done. Bold action, however, will earn Obama a second term.
My proposal:
The resolution of what to do with Freddie and Fannie should be tied to doing something about the problem of underwater mortgages, if only to correctly value them so that they can be recapitalized in the private market. They cannot be recapitalized at book, but if they are recapitalized at the market value of their holdings, those with underwater mortgages should benefit as well.
Much of these holdings are likely held by the Federal Reserve, which should be the agency of transition, and which hold another large chunk of mortgage paper.
The Federal Reserve should buy Freddie and Fannie from the United States at the value of the underlying assets, and also buy other securities backing underwater mortgages for market value as well. It can then detraunch these mortgages and adjust their value at the consumer level so that borrowers can sell if they need to, with clawback provisions if they make a profit. This will also improve their liquidity and lift the economy out of recession rather quickly.
The Fed can then break up and sell Freddie and Fannie as regional entities, with one spinoff of each containing the loan portfolios held in each Regional Federal Reserve Bank. This will help the Fed recover some of its losses, with any profit turned back to the Treasury.
With Larry Summers gone, this plan has a much better chance of success, provided it gets a thorough look. Something like this is essential to defuse the mortgage crisis in time for the 2012 election. There is not nearly enough time to let the market readjust in time for Obama to benefit if noting else is done. Bold action, however, will earn Obama a second term.
posted by Michael Bindner at 11:34 PM
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