Barney Frank on Fannie and Freddie (FNMA, FMCC)

Barney Frank was just interviewed on Fox Business Network by Neil Cavuto regarding the fates of Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: RMCC).When asked if the U.S. still needs Fannie Mae and Freddie Mac, he said, “Absolutely not. I think they should be abolished. The only question is what do you put in their place. This is a situation where given the importance they had come to play in housing, you can’t tear down the old jail until you build a new one.”On the key issue of homeownership, he noted, “I have been very critical for a long time that not everybody should be a homeowner. There are people in this society who for economic and frankly social reasons can’t and shouldn’t be homeowners. I do want some government help to build affordable rental housing. Working in a bipartisan way the house and the senate just passed legislation to strengthen the FHA’s ability to say no to people who shouldn’t be getting mortgages and to say yes to people who should.”When asked about the flaws in Fannie and Freddie, he expounded, “Fannie and Freddie were flawed because you had private shareholder corporations with a shareholder mandate to make profit and a public mandate. We have to unpack that. I am for some housing help.” On the controversial topic of mortgage subsidization, Mr. Frank said, “If we want to subsidize housing, we should do it upfront and let the budget be clear about how we are doing it. When you are dealing with unsubsidized conventional mortgages, do you need some form of mortgage guarantee? If you do, it has to be self financed from the beginning. And that’s the debate that’s going on now. In the bill that we just passed, we put risk retention in there. You will no longer be able to sell 100% of the mortgage. You will have to keep5% but it’s the first 5%. The first 5% of loss comes to you.”