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Would Abolishing Fannie and Freddie Stall the Real Estate Recovery?

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By Maria Patterson

mortgage_papers_calculatorEarlier this month, a bipartisan bill was put forth that would liquidate Fannie Mae and Freddie Mac and replace them with a government reinsurer of mortgage securities behind private capital. While the legislation is in the very early stages, there is mounting concern over how it might impact the real estate and mortgage industries.

According to the draft of the bill, Washington-based Fannie Mae and McLean, Va.-based Freddie Mac would be liquidated within five years and the U.S. Treasury would assume responsibility for their existing mortgage guarantees.

The bill is a reflection of a growing consensus in Washington that the U.S role in mortgage finance should be limited to assuming risk only in catastrophic circumstances, explains a June 4 report from Bloomberg News. It also reflects the prevailing view among lawmakers that the two government sponsored enterprises should cease to exist.

Exactly what kind of impact the dissolution of Fannie and Freddie would have on the real estate business remains to be seen, says Berkshire Hathaway HomeServices President Stephen Phillips.

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