Fed Chairman Lays Out GSE Options

Federal Reserve Board chairman Ben Bernanke has laid out several options for Congress to consider in restructuring Fannie Mae and Freddie Mac but warns that some form of government backing for mortgage securitizations will be needed even if the two are privatized. "If the GSEs were privatized, it would seem advisable to retain some means of providing government support to the mortgage securitization process during times of turmoil," the Fed chief said. He suggested that a FDIC-type agency could provide bond insurance for mortgage-backed securities. GSEs could have closer ties to the U.S. government, he said, and be operated as public utilities with shareholders, or adopt a cooperative ownership structure like the Federal Home Loan Banks. But the Fed chairman does not see much of a role for covered bonds in the future. "Given the long-standing features of the U.S. system, such as the prominent role of the Federal Home Loan Banks, covered bonds may remain an unattractive option for U.S. banks," he said, speaking at a University of California mortgage meltdown symposium.