U.S. government officials are considering a plan to remove bad loans held by Fannie Mae and Freddie Mac, according to a report by The Washington Post, to establish a fresh new home lending organization.
The bad debts owned by both firms would be placed in new government-backed financial institutions that would take responsibility for accumulating as much of the outstanding balance as possible.
In the end, two healthy financial companies would remain.
The hundreds of billions of dollars in non-profitable home loans is one of the Obama administrations largest burdens that came with the acquisition of both Fannie Mae and Freddie Mac.
While acknowledging that the removal of this debt would assist in easing the government’s load, a White House official said the administration’s thinking has already been aired out publicly and no final decision has been made.
“It should come as no surprise that the administration is thinking through” wholesale changes to these companies, Andrew Williams, a Treasury Department spokesman stated.
“We are in the preliminary stage of the process, the systematic development of options has not taken place, and no decisions have been made.”
The administration has said that is has already begun discussions over the future of the government sponsored enterprises and now are entering a more serious phase including a “gradual wind-down of their operations and liquidation of their assets” in addition to “incorporating the GSEs’ functions into a federal agency.”
The proposal has appeared in several internal papers and was included as part of an agenda for a meeting hosted by the White House’s National Economic Council.
Treasury Secretary Timothy F. Geithner said of the government’s efforts to date, that they “have taken the risk out of those two firms.”
“The only question that remains is what form, what structure they ultimately will take.”
Both Fannie Mae and Freddie Mac were nationalized in September 2008, and the government has since pledged over $1.5 trillion, including $85 billion in direct aid, to keep them afloat.