GAO Throws Cold Water on GSEs Becoming Utilities

The Government Accountability Office, in a new report, has entered into the debate over the future of Fannie Mae and Freddie Mac, blistering some of the most widely discussed options for revamping the two. Though the watchdog agency did not take a formal position on what policymakers should do with the GSEs, it essentially declared two ideas unworkable — fully privatizing Fannie and Freddie or turning them into public utilities. Those options could spur inefficiencies, raise mortgage rates and take banks out of the business of offering traditional mortgages, the GAO concluded. The report offered detailed pros and cons of other options including nationalizing Fannie and Freddie, simply restoring the firms to their previous status, breaking them up into multiple entities or turning them into cooperatives. In the year since the federal government seized the GSEs, options for how to deal with them have multiplied, even though the Obama administration has said it will not deal with the issue until 2010. While many Republicans and other conservatives have pushed for years to privatize the GSEs or eliminate them, the GAO found only one benefit to such an approach: enhanced market discipline. But the agency warned that it was not clear if privatized GSEs could support the mortgage market during a crisis.