The Changing Faces of Fannie and Freddie

What Happens Next For Mortgage GSEs
Some rumblings have been going on for quite some time, and now the U.S. Mortgage Bankers Association is on record with a proposal to alter Fannie Mae and Freddie Mac. The MBA would like to see them transformed into three units called Mortgage Credit-Guarantor Entities (MCGEs), which subsequently would be privately run.

Whether that plan gains traction or not is unclear, but once down-right giddy investors now appear nervous, and various analysts are speaking out with increased trepidation and (in some cases) venom about the situation. Most likely, business as usual will not continue much longer for Freddie and Fannie.

The government is weighing its role and deciding just how involved it should be. It can run them, back them, oversee them, or set them free, but each scenario has risks that give pause.

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How Freddie Mac and Fannie Mae are handled could serve as a message from the federal government about how it intends to manage the housing market in other ways.

A hands-on, nationalization of the GSEs would send a strong message that the market will be run with firm controls. If that happens, expect a lot more money to be spent to keep mortgage rates low, as well.

If the government begins to ease back its control, that could be attributed to increasing confidence that the market is rebounding, and a rally could be sustained on its own. Ultimately, it is easy to see mortgage rates beginning to climb a bit in that scenario.

The wise money, though, says that 2010 will feature some sort of tax incentive for buyers and a continuation of low mortgage rates. Anything less and an avalanche of foreclosure purchases will be entirely in investor hands. What you choose to root for depends, of course, on your situation.