Bernanke Sees a `Variety' of Options for Replacing Fannie Mae, Freddie Mac

Federal Reserve Chairman Ben S. Bernanke said in a letter to a U.S. lawmaker that he sees several different options for replacing Fannie Mae and Freddie Mac and eliminating the risks they posed to financial markets.

“There are a variety of organizational forms that might replace Fannie Mae and Freddie Mac that could likely provide mortgage credit without the systemic risks associated with these institutions in the past,” Bernanke said in a July 23 letter to Representative Marcy Kaptur, a Democrat from Ohio.

The Fed chairman in July 22 testimony said he sees an option to “to break up and privatize the companies, perhaps supported by a government insurance program for their mortgages that they would pay for.” Alternatively, the government could “make them more like government utilities,” he said

The Treasury seized Fannie Mae and Freddie Mac in 2008 as souring subprime loans pushed the companies toward collapse. The two firms own or guarantee more than half the $11 trillion mortgage market.

The government should ensure “accurate, transparent and risk-based pricing of government guarantees,” Bernanke said in the letter, which was released by Kaptur’s office.

Bernanke said in testimony last month that the current status of Fannie Mae and Freddie Mac isn’t viable. “It’s not sustainable, obviously,” he said.

To support the housing market and banks, the Fed has purchased $1.25 trillion of agency mortgage-backed securities.

To contact the reporters on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

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