It's MORNING EDITION from NPR News. Good morning. I'm Steve Inskeep.


And I'm Linda Wertheimer.

Today, President Obama's administration considers what to do about two giant mortgage companies. The U.S. government founded both of them. Republicans blamed both of them for the recession.

Senator MITCH MCCONNELL (Republican, Kentucky): Fannie Mae and Freddie Mac, the main protagonists in the financial meltdown.

Representative JOHN BOEHNER (Republican, Ohio): The real reasons for the financial meltdown, Fannie Mae and Freddie Mac.

Senator LAMAR ALEXANDER (Republican, Tennessee): The two giant federal housing agencies called Fannie Mae and Freddie Mac, who had almost everything to do with the recession that we're in.

WERTHEIMER: Republican lawmakers like Mitch McConnell, John Boehner and Lamar Alexander argued that Fannie and Freddie started the rush into risky home mortgages.

INSKEEP: Not everyone agrees with that assessment, which overlooked other factors more closely linked to the Bush administration. But these government-sponsored companies have lost a lot of money on bad home loans.

Today, the Obama Administration hosts a conference on how to fix the companies or replace them.

NPR's Scott Horsley reports.

SCOTT HORSLEY: Fannie and Freddie have long been the biggest players in the mortgage market. And that made them natural scapegoats when the market soured, especially among Republicans already suspicious of government involvement in financial affairs. Never mind that publisher Guy Cecala of Inside Mortgage Finance says Fannie and Freddie were not the biggest offenders in backing risky sub-prime loans.

Mr. GUY CECALA (Inside Mortgage Finance): Clearly there was a lot more going on than just Fannie Mae and Freddie Mac purchasing a few bad loans. In fact the bulk of the bad loans weren't purchased by Fannie Mae and Freddie Mac. Yet Fannie and Freddie carry the government guarantee, they're supposed to do good things for the housing market. And to some extent everybody feels they let us down.

HORSLEY: Fannie and Freddie were set up decades ago to encourage home-ownership by making loans more widely available. They provide money to lenders by buying up mortgages, keeping some, and bundling others for sale to investors. Although both were private, for-profit companies, it was generally understood the government would back up Fannie and Freddie if they got into trouble, and that's just what happened two years ago, when the government took over the companies, leaving taxpayers with a very big bill.

Mr. MICHAEL BERMAN (Chairman, Mortgage Bankers Association): There's probably enough finger-pointing to go everywhere.

HORSLEY: That's Michael Berman, incoming chairman of the Mortgage Bankers Association. His group is proposing to replace Fannie and Freddie with new private companies that would take over the job of bundling mortgages for sale to investors. For a fee those bundles would still be backed by the federal government. But unlike Fannie and Freddie, the bundling companies would not be. And there'd be strict limits on the kinds of loans they could handle.

Mr. BERMAN: It would be a conservative lending environment with respect to the government involvement. The key is to make sure that you have these kinds of classic, historically proven products like a 30-year mortgage, 15-year mortgage, that would be there through all times of the economy, including the kind of stress that we have today.

HORSLEY: One question at today's conference is how big a role the government should play in that effort.

Consumer advocate Mike Calhoun of the Center for Responsible Lending says until their recent problems, Fannie and Freddie did a lot of good, popularizing the 30-year fixed-rate mortgage, for example.

Mr. MIKE CALHOUN (Center for Responsible Lending): We need to be careful, the proverbial don't throw the baby out with the bathwater.

HORSLEY: Calhoun and other consumer advocates say Fannie and Freddie were simply following Wall Street's bad private sector example when they began chasing the profits in riskier loans. Calhoun says the government is already cracking down on the most dangerous kinds of mortgages, as part of its financial overhaul passed by Congress last month.

Mr. CALHOUN: So if you'd had those standards in place before this last mortgage and financial crisis, we wouldn't have gone down that path.

HORSLEY: Don't look for any quick changes. Fannie and Freddie still bankroll two out of three new mortgages. And Guy Cecala of Inside Mortgage Finance says the fragile housing market can ill afford any hiccups in their operation.

Mr. CECALA: Can we pull the plug on them any time soon? The answer is clearly no. We can't pull the plug on them.

HORSLEY: Today's conference at the Treasury Department is an early step towards drafting legislation to deal with Fannie and Freddie next year.

Scott Horsley, NPR news, Washington.

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