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March 3rd, 2009

Control of GSEs Will Likely Shape Industry

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We wrote back in December about the ongoing debate over the future operating status of Fannie Mae and Freddie Mac. As the debate continues amongst lawmakers, the concern has been raised that if the U.S. doesn’t relinquish its control of Fannie and Freddie, it could reshape the entire mortgage industry — and not for the better, according to some.

When the mortgage giants were entered into a conservatorship last September, the takeover gave the government the opportunity to pursue specific goals and legislation through the two:

Regulators have ordered the companies to oversee a vast new mortgage modification program, to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers.

Recent discussion from critics over the fear that Washington will nationalize the nation’s banks — thus controlling the industry — has been mirrored in regards to the mortgage industry. When nationalization is an emerging strategy in order to control large institutions — even if it’s only temporary — it can crowd out private industry, leaving little room for competition.

“Once the government gets its claws into an industry, it’s often hard to get them out,” said HSH Vice President Keith Gumbinger.

According to Barney Frank, chairman of the House Financial Services Committee, portions of Fannie and Freddie will again return to both the public and private sector. Frank also said that the GSE’s current operating structure is designed to prevent them from adding to the problems that contributed to the crisis in the first place.

Should the government have any stake in the mortgage industry? Should Fannie and Freddie return to their quasi-government status?

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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