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

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

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While Congress is taking a dim view of any financial executivethatfalls back on that explanation, Citigroup has made significantstridesback to health and the government has laid out plans to exitits stakein the bank--at a profit. Fannie Mae, unfortunately, isstillbleeding red ink and it is clear that Congress intends to takesomeaction to reform it.

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Although the main focus is on the larger financial institutionreform,a political scrum is forming over the GSE overhaul and it isunclearhow it will play out. Treasury Secretary Timothy F. Geithnerhas testified that the Obamaadministration wants to keep inplace some aspects of their roles. He's also said theAdministration wants to expand its support of the GSEsby endingtheir status as shareholder-owned companies. HouseRepublicans, ledby Financial Services Committee Ranking MemberSpencer Bachus, arecalling for a plan that would phase out operationsof the GSEswithin four years.

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

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

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More than likely, despite the many suggestions for change oroutrightdismantling of the GSEs, nothing significant will be doneto them,says Edward Mermelstein, a Manhattan-based real estateattorney. "At this point, dismantling it would be like dismantlingSocial Security--it is so integrated into the fabric of governmentand the housing finance industry it is impossible to move in anyotherdirection," he tells GlobeSt.com. "So what we have is agovernmental entity that is not the best run nor is it the mostefficient, but unfortunately it is indispensable." If thegovernment were to withdraw its support the residential multifamilymarket would collapse, he says.

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