Paulson: GSE 'Utility' Model Might Work

Departing Treasury Secretary Henry Paulson on Wednesday weighed in on the future of Fannie Mae and Freddie Mac, suggesting a 'public utility' model might be the best way to "resolve the inherent conflict between public purpose and private gain." Speaking before the Economic Club of Washington, Mr. Paulson repeatedly emphasized that the "pre-conservatorship" structure of Fannie Mae and Freddie Mac is not an option for policy makers who will weigh in on the issue this year. Mr. Paulson said the nation needs what he called a "vibrant private market" for mortgages, saying the government might want to "enhance" the ability of depositories to fund mortgages as a possible substitute should Fannie and Freddie be dismantled. He provided no details but discussed four options: expanding the role of FHA and GNMA in mortgages; creating a partial government guarantee for MBS issued by GSEs; completing privatizing the housing GSEs; and the public utility model where private sector money would be used to purchase and securitize mortgages (but not hold them) and where the government would set interest rates and yields.