Congress will ultimately decide what's next for Fannie Mae and Freddie Mac, following the government takeover last weekend. Sen. Christopher Dodd, the Connecticut Democrat who leads the Senate Banking Committee, will take a leading role in that debate.
Dodd appeared on Morning Edition in July, when Treasury Secretary Henry Paulson was asking Congress for the authority to take over Fannie and Freddie if it became necessary to do so. At that time, Dodd said he supported contingency plans to prop up the two mortgage giants because they were simply too big to fail.
But he now says he is surprised that the authority was actually used — and so quickly.
"I got a call on Friday afternoon of last week, suggesting they were thinking about this, and picked up my Saturday morning paper to discover they had done it," he tells Renee Montagne. "I gather more people probably on Wall Street were aware of what was happening than those of us who set public policy."
Dodd has said he is troubled about the plan. "First of all, I want to know the motivations for it," he says. "We passed a major, landmark piece of housing legislation about a month ago, in which was included newly sought authority by the secretary of the Treasury to possibly take equity positions within Fannie Mae and Freddie Mac — with a quick assurance by the secretary of the Treasury that that authority would never be used — but now, getting a far more aggressive action taken by the Treasury. So I clearly have a question: What transpired? The second question I have is: What [effect does this] have on home mortgages, on homeowners? Thirdly, what happens to taxpayers?"
Dodd notes that Paulson has said his intention is that there will be no exposure for taxpayers. But Dodd says he was also told a month ago that the secretary would never use the authority to take over Fannie and Freddie.
"So at this point, I'm going to be a lot more cautious about adopting and supporting a proposal like this, until I have some clear ideas on how this is all going to work," Dodd says.
Dodd says he is not accusing Paulson of not telling the truth, and circumstances may have changed "radically."
"I'd just like to know what's happened, what's caused this and where are we going with all of this," he says. "There have been those for years who just want to get rid of these government-sponsored enterprises. I would just remind people, in your anxiousness to do that, don't ever forget how important these institutions have been for the average person in this country getting a 30-year, fixed-rate mortgage. ... You get rid of that — you change fundamentally home ownership in this country — I think our economy could be dealt a severe blow."
Some critics have accused Congress of failing to adequately regulate Fannie and Freddie to prevent such a crisis, but Dodd says reforms were included in the housing bill passed this summer, after seven years of failed efforts.
Paulson has called the takeover of Fannie and Freddie a "time out" to protect the mortgage market until the government decides what to do with the companies in the long term.
Dodd says the companies needed to have better controls on them and a clearer idea of what their portfolios should look like. "This may end up working out fine," Dodd says. "I don't want to have this conversation be one where I'm totally opposed to this. I'm asking [the] kinds of questions that, frankly, I would have liked to have been able to raise earlier on."