By Corbett B. Daly
"Fannie Mae and Freddie Mac have already moved well beyondthe points where any other financial institution would havebeen put into receivership," MBA Chief Executive John Coursonand MBA Chairman-elect Michael Berman wrote in a seven-pageletter to the Federal Housing Finance Agency.
As the financial crisis unfolded in 2008, then-TreasurySecretary Henry Paulson effectively took control of the firms,although he stopped short of full nationalization by placingthem in a "conservatorship" to keep them off the federalbalance sheet.
The government controls 79.9 percent of Fannie Mae andFreddie Mac, just shy of the 80 percent threshold for placingthem on the federal books. Conservatorship is intended forfirms that could be restored to health, while receivership isthe end-of-the-line liquidation phase.
"The current situation is not unlike a brain dead patientwho is being kept alive indefinitely by artificial lifesupport," Courson and Berman wrote.
The mortgage bankers urged the FHFA to make it clear whatwould happen to the two firms so creditors will know who willbe paid if and when they are put into receivership.
"What is paramount, however, is that FHFA protect all thecash flows associated with the (mortgage backed securities)from the demands of any other class of claimants," the bankerswrote.
The FHFA in July issued a proposed rule on how the entitieswould be placed into receivership and asked for publiccomment.
Treasury Secretary Timothy Geithner said last month theU.S. government's role in housing finance should undergo"fundamental change," but that it should still provide someguarantees in the $10.7 trillion mortgage market.
The House Financial Services Committeehas scheduled a pair of hearings later this month on the futureof U.S. housing finance.
Fannie Mae and Freddie Mac -- recipients of $150 billion intaxpayer bailout money since being taken over by the Bushadministration in 2008 -- pose a vexing policy challenge to theObama administration as the November mid-term congressionalelections approach. (Reporting by Corbett B. Daly; Editing by Dan Grebler)