U.S. officials are considering a plan to isolate failing assets held by Fannie Mae and Freddie Mac, The Washington Post reported on Wednesday, while an administration official said such an idea was in the early stages of development.
Such a move would help alleviate one of the Obama administration's biggest burdens created by the rescue of Fannie Mae and Freddie Mac: the hundreds of billions of dollars in money-losing home loans owned by the government-sponsored enterprises (GSEs), the article said.
While acknowledging that the idea is on the table, a White House official said the administration's thinking has already been aired out publicly and no final decision has been made.
It should come as no surprise that the administration is thinking through GSE reform, a commitment we made to Congress in the regulatory reform white paper, but we are in the preliminary stage of the process, the systematic development of options has not taken place and no decisions have been made, said White House spokeswoman Jen Psaki.
Last month, the administration said it was mulling a variety of plans for the future of Fannie Mae and Freddie Mac, including a gradual wind-down of their operations and liquidation of their assets as well as incorporating the GSEs' functions into a federal agency.
The companies' regulator, James Lockhart, director of the Federal Housing Finance Agency, confirmed that the administration is discussing the good bank bad bank model and that the discussion was in an early stage, the Post reported.
The proposal has appeared in several internal papers on the topic and appeared as part of an agenda for a meeting on Thursday hosted by the White House's National Economic Council, the newspaper said.
President Barack Obama's budget proposal for 2010 tallies up the federal aid granted to Fannie Mae and Freddie Mac but does not bring those mortgage-finance companies' obligations fully onto federal books.
In September, Fannie Mae and Freddie Mac were effectively nationalized when the government promised to buy up to $100 billion preferred shares in each company and created warrants to severely dilute existing shareholders.
(Additional reporting by Patrick Rucker, Matt Spetalnick; Editing by Dhara Ranasinghe)