Government Faces Large Hurdles in Unwinding Fannie, Freddie
By Joe Adler
While most top lawmakers and President Obama agree that Fannie Mae and Freddie Mac should be unwound, cleaning up the government-sponsored enterprises is a challenge unlike anything the government has attempted before. So far, the debate has mostly focused on what replaces the GSEs, rather than exactly how they should be taken apart. Yet the mechanics could have a large impact on the mortgage market and whether a bill can attract the necessary political support to pass. “Even though the GSEs are put into ‘receivership’, their existing obligations are given unique protection not contemplated for any other type of” systemically important financial institution, “because Fannie and Freddie are not any other type of SIFI,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics. Petrou added that the fiscal implications of that coverage may start to get more attention as the GSE debate continues. “If you give Fannie and Freddie that explicit guarantee for all their existing obligations, what’s the budget impact of that? It’s huge,” she said. “These days, budget impact is a serious policy and political issue.”