Treasury Secretary Geithner in a meeting with President Obama. Image from Wikimedia Commons.

At a recent press conference, Treasury Secretary Timothy Geithner called for changes to be made to the way the mortgage market does business. He did not issue a hard and fast deadline. However, it is expected that he will tell Fannie Mae and Freddie Mac to get their houses in order within the next year. Geithner also made it clear that the U.S. cannot afford to have to bail them out again and that they were too aggressive in taking on risk.

Geithner unclear on how to proceed

As of now, there is no real plan in place for what to do about Freddie Mac and Fannie Mae. However, Geithner did make a few things perfectly clear. First, Fannie and Freddie will not be resuming business in the manner they were conducting it before the market meltdown. He also pinpointed irresponsible practices, including the two mortgage houses trying to take the bulk of the market from the private sector. He was adamant that the current mortgage industry, as it stands, is untenable, according to Reuters.

Little consensus on how to go about it

There is not much in the way of a consensus among industry insiders or economists on how to best reform the housing industry. Geithner did support retaining some of the government backing of mortgages, as the richest industrial nations all have something akin to Freddie and Fannie for insuring mortgages against loss. Some, such as Bill Gross, the co-founder of the Pacific Investment Management Co., argue full nationalization is necessary. According to Businessweek, the investment guru contended that the private market cannot make a comeback at this point.

Something has to be done regardless of strategy

Despite the wide range of opinions that exist about what to do about Fannie Mae and Freddie Mac, all agree something has to change. According to NPR, the government is already on the hook for $150 billion for the mortgage houses. For the first half of this year, 89 percent of all mortgages granted in America were backed by Freddie Mac, Fannie Mae and Ginnie Mae. Ginnie Mae, unlike Freddie and Fannie, is wholly part of the U.S. government, sells mortgage backed securities only if they meet specific standards and doesn’t lend mortgages.

Further Reading

Reuters

Business Week

NPR