Bernanke discusses future of Fannie and Freddie

Fed chairman says government will need to back mortgage loans going forward regardless of what happens to Fannie Mae and Freddie Mac.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Chris Isidore, CNNMoney.com senior writer

The Economy
The Economy: Why it feels so bad
CNN's Ali Velshi and Erica Fink take a long, hard look at five key measures of the economy to see how things really are out there and if your economic fears and concerns are justified.

NEW YORK (CNNMoney.com) -- Federal Reserve Chairman Ben Bernanke said Friday that the federal government will need to continue to play a role in the future of the mortgage financing market.

In a speech broadcast to an economic symposium in Berkeley, Calif., Bernanke said there are many alternatives that need to be considered but that all will involve a role for the federal government and federal guarantees for securities backed by mortgage loans.

"Government likely has a role to play in supporting mortgage securitization, at least during periods of high financial stress," he said.

The remarks included a detailing of the recent problems in the mortgage markets, which led to the Treasury Department putting mortgage financing giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) into conservatorship on Sept. 7.

The two government sponsored firms either owned or guaranteed about $5 trillion in mortgages between them and their problems could end up costing taxpayers hundreds of billions of dollars in future losses.

But Bernanke said having them replaced by totally private firms could cause greater problems for the economy during a future financial crisis. Thus, he said that the federal government will likely have a role guaranteeing mortgages into the future.

"From a public policy perspective, a greater concern with fully privatized [firms] is whether mortgage securitization would continue under highly stressed financial conditions," he said. "As I have noted, almost no mortgage securitization is occurring today in the absence of a government guarantee."

Bernanke did not endorse any specific alternative for Fannie and Freddie and he stopped short of advocating for the government to completely nationalize the two firms. Instead, he gave a rundown of numerous proposals that have already been raised by Fed and Treasury officials as well as other experts.

Bernanke did caution that going back to the structure of Fannie Mae and Freddie Mac before the credit crisis -- as shareholder-owned companies with only an implicit government guarantee -- is not a good idea, especially with their huge portfolios of mortgage loans.

"As the Federal Reserve has argued for many years, the enormous [Fannie and Freddie] portfolios pose risks to financial stability," he warned. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.