WASHINGTON – Jan. 25, 2010 – Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said on Friday that the government-backed mortgage finance giants Fannie Mae and Freddie Mac are likely to be abolished and replaced with a new system for housing finance.

“The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” said Frank, once a big proponent of the firms. “That’s the approach, rather than a piecemeal one.”

Fannie Mae and Freddie Mac are two vital cogs in the nation’s mortgage market, buying loans from lenders, insuring them against default and supplying fresh cash to make more loans. The two companies are behind most home loans. Because of mounting losses on those loans that threatened their collapse, Washington-based Fannie Mae and McLean-based Freddie Mac were seized by the federal government in September 2008 and are now run by regulators.

Frank said no decision has been made about what future model he will propose, and aides said no action is imminent. He has said it’s important for the government to continue to play a role in fostering housing affordability.

Treasury Secretary Timothy F. Geithner said Thursday that Congress likely won’t be able to take up housing finance reform this year. The administration will release principles for reform next month.

“We are committed to propose a set of detailed reforms beginning this year,” Geithner said in an interview on “PBS News Hour.” “I don’t think we’re going to be able to legislate that until that process (starts) next year, because it’s just a complicated thing to get right.

“But we are completely supportive and agree completely with the need to make sure that we take a cold, hard look at what the future of those institutions should be in our country,” he said in the interview.

Copyright © 2010 washingtonpost.com