New Jersey governor wants larger gov't role for Fannie

By Corbett B. Daly

DENVER (Reuters) - The U.S. government should eliminate the hybrid structure of mortgage giants Fannie Mae and Freddie Mac and fully back them with taxpayer funds, New Jersey Gov. Jon Corzine said on Tuesday on the sidelines of the Democratic National Convention.

"I don't think we can continue with the schizophrenic view that we have today, sort of part-public company, part-private company, where the leaders of the company do well when things are going well but then the government and the public and the taxpayer has to bail them out when it goes bad," said Corzine, the former chief executive of Goldman Sachs.

Initially a major backer of Sen. Hillary Clinton, he is now backing candidate Barack Obama.

Asked in a Reuters video interview about a possible government takeover of the two mortgage giants, Corzine said Treasury Secretary Henry Paulson may be forced to make that move. Fannie Mae and Freddie Mac are publicly traded firms that are implicitly backed by the government.

"The fact is that we have to have a clear definition of what the mission of Freddie and Fannie is and if it is to serve the public than it ought to be owned by the public where the risk and rewards are controlled by the public," he said.

INTENSE SCRUTINY

A Citigroup analyst earlier in the day said the two GSEs have enough capital to absorb probable losses through the end of the year, reducing the need for emergency government support.

Still, the companies have come under intense scrutiny over the past few months on investor speculation that mortgage losses would cause shortfalls in capital, and lead to a government bailout. Fannie Mae and Freddie Mac shares have tumbled since May with analysts contending a taxpayer-funded rescue could leave shares worthless.