In 1973 I was traveling with a regional mortgage banker whose bank was a major real estate investment trust (REIT).  His bank had just become the unfortunate owner of an apartment development in Phoenix due to loan default and he was traveling to see the asset.  He summarized the bank's position by saying,

 "We've had all the cheese we want to eat.  Now all we want to do is get out of the trap!"  

Flashing forward 37 years, the American taxpayer has become the equally unhappy owner of 70% of the mortgage market due to our unwilling complicity in Fannie Mae and Freddie Mac.  

There are some in Congress who feel that these two mortgage behemoths, Fannie Mae and Freddie Mac, should not be reformed.  They claim that the housing and mortgage markets are simply too fragile right now.  They  wonder how our country and economy can weather a significant change.

Next Tuesday, the Treasury Department holds the first public forum on how and whether to reform these two mortgage giants.  Both have been hemorrhaging cash, yet they still control 70 percent of today's mortgage market.

The Treasury Department began soliciting proposals last spring on how to reform these GSEs.  The proposals collected - several hundred - range from totally privatizing them to fully nationalizing them.

Notable organizations, the Mortgage Bankers Association and the Financial Services Roundtable, have contributed similar ideas.  They advocate new private companies where the mortgage-backed securities (MBS) themselves, not the companies that hold them, are backed by the federal government.  Each has a series of safeguards for investors, mostly involving insurance funds and strict criteria for the types of mortgages allowed into the securities. 

Regardless of the form a reform takes, it is apparent that loan standards must be tightened so that it takes more than the ability to fog a mirror when you exhale to get a loan. 

For most citizens, our homes are our single largest asset, so speaking out about the overhaul matters.   Far too many citizens have had their credit destroyed and homes foreclosed, and the carnage is far from over.  Squabbles have already begun over who should control the overhaul.  Community activists claim their voice is not being heard.  Financial giants are threatening to leave the mortgage market if they don't get their way ("I'll take my ball and go home").

Let's be clear.  The practices of Fannie Mae and Freddie Mac have cost taxpayers over  $148 BILLION on paper.  They have created irreparable, continuing and costly damage to consumer confidence in housing.  They are not viable in their current state and must not exist long term.  It is time to fix Fannie Mae and Freddie Mac before they cause still more damage. 

As Sir Winston Churchill said, "It's not enough to say that you are doing your best, you must succeed at doing what is necessary".

Tags: Fannie Mae, Freddie Mac, government sponsored entities, GSEs, Treasury Department, reforming Fannie Mae and Freddie Mac, credit destroyed, foreclosure, short sales, totally privatized, totally nationalized, Mortgage Bankers Association, Financial Services Roundtable, mortgage backed securities, MBS, ATLShortSales.com.