What’s the future of Fannie, Freddie, and the rest of the secondary mortgage market?

Roadblocks and more roadblocksAlmost a year ago the Treasury Department offered some ideas for getting the government (and taxpayers) off the hook for when lenders make bad loans. But, shockingly, politics is getting in the way of Congress actually doing anything to encourage a private secondary mortgage market.

Some of the things on the table:

  • Should lenders have to maintain some risk? (Dodd-Frank says 5%)
  • If so, what should the exceptions be — 20% down?
  • Should the emphasis be on A) regulating lending to prevent lenders from offering mortgages to unqualified buyers, or B) making it easier for investors to recoup losses if lenders make the same mistakes they did to create the bubble? (Assuming they aren’t bankrupted.)
  • What role should the Consumer Financial Protection Bureau have in working with other federal agencies?
  • What should come first, changes to the way Fannie and Freddie operate, or broader secondary market changes?

Five bills have been introduced offering various answers to those questions. None has made it out of subcommittee. So the chances of anything happening beyond the typical political noise is remote — at least until after the 2012 elections when the new Congress might offer fewer roadblocks.

Here’s an exchange between two legislators:

Rep. 1: “It doesn’t make sense to move forward on a private-label bill until this committee comes to a consensus on what to do with Fannie and Freddie.”

Rep. 2: “The journey of thousand miles begins with one step.”

Rep. 1: “Usually the step is forward.”

We’ll keep you updated, of course.