What’s the plan for Fannie and Freddie?

Treasury Secretary Timothy Geithner got a grilling from impatient lawmakers on Capitol Hill who want to know what the Obama administration is going to do about mortgage giants Fannie Mae and Freddie Mac. Nancy Marshall Genzer reports.

NANCY MARSHALL GENZER: There are only so many ways to say, “I don’t know yet.” That was Treasury Secretary Geithner’s stock answer today at a Congressional hearing on how to overhaul Fannie Mae and Freddie Mac.

TIMOTHY GEITHNER: Now I have not seen an ideal model yet.

Fannie and Freddie are a funny mix of public and private. They buy up mortgages, giving banks more money to lend. They now own or guarantee about half of all U.S. mortgages — some with a distinctive, subprime stench. Some people say, just abolish Fannie and Freddie.

Karen Petrou is a banking analyst at Federal Financial Analytics. She says that’s just not practical. They’re propping up the housing market. She prefers a middle road. Make Fannie and Freddie like utilities. Privately-owned, but with marching orders from Uncle Sam.

KAREN PETROU: But they’re much better regulated so in terms of activities, pricing and other functions, so that like electric utilities you can be sure the lights stay on.

Banking consultant Bert Ely says the lights can stay on by themselves. The private market can take over. He says investors are already starting to jump back into the mortgage market, leaving Fannie and Freddie to a gentle demise.

To listen to the full story click here: