February 23, 2010 / 9:37 PM / 9 years ago

UPDATE 1-Republicans push Obama to put Fannie, Freddie on budget

(Adds Donovan reaction)

By Corbett B. Daly

WASHINGTON, Feb 23 (Reuters) - A pair of key Republicans on the House Financial Services Committee is pushing the White House to end the long-standing practice of excluding mortgage finance companies Fannie Mae FNM.N and Freddie Mac FRE.N from the federal budget.

“It is the same sort of financial shell game that has brought governments like Greece to a crisis point. Hiding your debts just leads to a bigger day of financial reckoning down the road,” said Representative Spencer Bachus, the top Republican on the panel.

Bachus said he was backing legislation from Representative Scott Garrett, the top Republican on the House Financial Services Subcommittee on Capital Markets, to put the two enterprises on the federal budget.

Fannie Mae and Freddie Mac, which play a role in funding three-quarters of all U.S. residential mortgages, came under government control in September 2008 when they received a massive bailout that gave the government a 79.9 percent stake.

Fannie was formed in the late 1930s in the wake of the Great Depression as a government agency and was chartered by Congress in 1968 as a private, shareholder-owned company in order to take it off the federal books.

But their congressional charter provided an implicit guarantee from Uncle Sam.

As the financial crisis unfolded in 2008, the guarantee was made explicit when then-Treasury Secretary Henry Paulson, a Republican, effectively took control of the firms, though he stopped short of full nationalization by placing them into a “conservatorship” in order to keep the firms off the federal balance sheet.

Just over a year later, on Christmas eve, the Obama administration extended an unlimited credit line to the two companies through the end of 2012. Previously, the credit was capped at $400 billion.

Earlier this month, the White House said it expected Fannie Mae and Freddie Mac’s finances to weaken further but did not offer any vision for the future of the two, as analysts had expected.

President Barack Obama’s budget proposal said Fannie Mae and Freddie Mac will tap a total of $188 billion in government funds by October 2011, up from the $111 billion they have already drawn. That does not count trillions in liabilities for the government-controlled firms.

House Financial Services Committee Chairman Barney Frank has said he wants to see Fannie Mae and Freddie Mac “abolished” in their current form, though he has not specified what that means.

Frank has scheduled a hearing before his panel on the future of the firms, known as government-sponsored enterprises, for March 2 and has invited Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan to attend.

Asked about Bachus’ comparison to Greece, Donovan declined to comment directly. On the broader issue of putting Fannie and Freddie on the federal books, Donovan told Reuters it is “putting the cart before the horse to say you will make a decision about what’s going to be in the budget before you make decision about what to do with Fannie and Freddie.”

Editing by Kenneth Barry

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