Unlike Citigroup and the Federal Reserve Bank, however, Fannie Mae hasyet to show any sign of improvement from the collapse of the mortgagesecurities markets, which made the testimony all the more significantas Congress sets about fixing the GSEs' own house.

Daniel H. Mudd, Fannie Mae chief executive from 2004 to 2008, told thepanel that it was Fannie's conflicting mission--make a profit butalso increase the supply of affordable housing--that drove it toinvest so heavily in subprime mortgages. Also, he said, the depth ofthe financial crisis and its sudden turns, made it impossible foranyone to foresee how bad things could get--sentiments also voiced bythe former Citigroup executives the day before.

While Congress is taking a dim view of any financial executive thatfalls back on that explanation, Citigroup has made significant stridesback to health and the government has laid out plans to exit its stakein the bank--at a profit. Fannie Mae, unfortunately, is stillbleeding red ink and it is clear that Congress intends to take someaction to reform it.

Although the main focus is on the larger financial institution reform,a political scrum is forming over the GSE overhaul and it is unclearhow it will play out. Treasury Secretary Timothy F. Geithner has testified that the Obamaadministration wants to keep in place some aspects of their roles. He's also said the Administration wants to expand its support of the GSEsby ending their status as shareholder-owned companies. HouseRepublicans, led by Financial Services Committee Ranking MemberSpencer Bachus, are calling for a plan that would phase out operationsof the GSEs within four years.

Rep. Barney Frank (D-MA), who has championed Fannie Mae and Freddie Macfor years on the Hill, also said he wants to abolish the two GSEs in their current form--although he wants to develop a new system of housing finance in its place.

The private sector is also weighing in--one plan has been put forthby National Association of Realtors, which is advocating a shift in which the GSEs are restructured into government-chartered,non-shareholder-owned authorities.

More than likely, despite the many suggestions for change or outrightdismantling of the GSEs, nothing significant will be done to them,says Edward Mermelstein, a Manhattan-based real estate attorney. "At this point, dismantling it would be like dismantling Social Security--it is so integrated into the fabric of government and the housing finance industry it is impossible to move in any otherdirection," he tells GlobeSt.com. "So what we have is a governmental entity that is not the best run nor is it the most efficient, but unfortunately it is indispensable." If the government were to withdraw its support the residential multifamily market would collapse, he says.

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Former Fannie Officials Testify to Congress

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