Fannie and Freddie: Fallout continues

10 September 2008

Politicians remain divided over what is to be done with newly-nationalised mortgage giants Fannie Mae and Freddie Mac.

Legislation is currently only being drafted regarding the future of the organisations - with many analysts expecting concrete plans only to surface with the election of a new Congress and a new president.

Options on the table include putting the lenders back in to private ownership, turning them into a public utility, or maintaining the previous status quo of Fannie and Freddie being government sponsored (and backed), yet running as private companies.

The two presidential candidates have differing views over what to do, the Associated Press reports.

John McCain, the Republican nominee, has said that he would like to see the amount of mortgage debt held by the two firms shrunk.

They currently retain around half of the entire US market.

Meanwhile, Democratic nominee Barack Obama has expressed the view that Fannie and Freddie's purportedly ambiguous public and private roles be made more clear.

However, the parties are agreed on one thing: the lenders' financial status remains under threat, and therefore they should continue to be held in public hands for the near future.

"Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Treasury secretary Henry Paulson said.

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