“Take a Haircut,” Says Barney Frank to Freddie and Fannie Bond Holders

Fannie Mac (NYSE: FNM) and Freddie Mac (NYSE: FRE) bondholders shouldn’t assume the government will make them whole on their investments as Congress retools the companies, House Financial Services Committee Chairman Barney Frank said.

Representative Scott Garrett, a New Jersey Republican, is pushing legislation that would bring the companies’ debt obligations onto the federal budget, which Frank will oppose according to his comments.

A “whole range” of options is being considered for investors in the two government-seized companies, “from paying nothing to a haircut to whatever,” said Frank, whose committee oversees Fannie Mae and Freddie Mac. Congress will maintain the “status quo” and won’t make drastic changes to Fannie Mae and Freddie Mac until a new system for housing finance is in place, Frank said.

“We’re not remaking Fannie and Freddie,” Frank said. “We’re going to start from scratch and do housing finance,” Frank said.

Since Frank is struggling to merely pass a financial reform bill, that has some teeth, I wouldn’t hold my breadth concerning the speed and substance of a complete redo of Fannie and Freddie.

The Treasury Department took an 80 percent equity stake in each company as part of the September 2008 takeover, which wiped out the majority of common and preferred shares.