• By
  • Nick Timiraos
Associated Press
Republican presidential nominee Mitt Romney campaigning in Colorado on Monday.





Revamping Fannie and Freddie will be no easy task. For years, the companies provided a convenient way of promoting homeownership without requiring Congress to spend any money. The firms don’t make loans, but instead buy them from lenders and package them into securities that investors are willing to buy at a low price because Fannie and Freddie guarantee to make investors whole when loans default.

The companies had a fuzzy implied guarantee, whereby investors expected that the government would backstop the firms—and limit their potential losses—if the firms ran into trouble. The government was forced to make good on that implied guarantee as the housing meltdown triggered a full-blown financial panic in 2008.

Fannie and Freddie today are unpopular, of course, because they’ve required more than $140 billion in taxpayer infusions. But the firms—and the government backing—helped attract lots of cheap capital into the U.S. mortgage market that enabled Americans to receive 30-year fixed-rate mortgages at very attractive prices.

Associated Press
President Barack Obama after a campaign event on Saturday in Milwaukee.

Republicans in Congress have made little effort, for their part, to push through bills introduced two years ago that would speedily wind down the firms without specifying how loans might be funded in their place. Bank balance sheets aren’t large enough, and markets for privately issued mortgage-backed securities are very small, with many investors still smarting from losses sustained as a result of the housing bust.

The Democratic Party platform makes no mention of Fannie and Freddie, while the Republican Party platform says the firms should be “wound down in size and scope”—language that’s very similar to what the Obama Treasury Department has used in recent years.