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They're big, they're bad, they're sucking up billions of taxpayer dollars and they're not even addressed in the most sweeping overhaul of the financial system since the Great Depression.
Two years after a wave of rogue mortgage lending sent the global financial system to the brink of collapse, Congress has put the finishing touches on a hotly-debated set of regulations to try to prevent it from happening again. The Senate passed the regulatory reform bill Thursday, paving the way for President Barack Obama to sign into law his administration’s third piece of major legislation.
Unfortunately, the new law has a gigantic hole in it — there's nothing in it dealing with struggling mortgage giants Fannie Mae and Freddie Mac.
“The essence of the problem was a real estate meltdown,” said Sen. Judd Gregg (R, N.H.). “The primary thing that we as a government should have addressed is Fannie Mae and Freddie Mac. The bill doesn't address that.”
Call them the twin elephants in the room of financial regulatory reform.
Between them, the two so-called government sponsored entities own or guarantee more than 30 million home loans worth $5.5 trillion — or about half all mortgages outstanding. Already more than $145 billion in the hole, the government’s two giant mortgage companies are expected to need continued government life-support for the foreseeable future.
In the meantime, Fannie and Freddie continue to lose boatloads of taxpayer dollars; in the first quarter alone, Fannie Mae lost $8.4 billion and Freddie Mac burned through another $10.5 billion. They’re both carrying hundreds of billions of dollars worth of mortgages written during the boom years of 2005-2007, loans that continue to go bad. And as of the end of the first quarter, they had accumulated 164,000 foreclosed homes that will have to be sold at a loss.