U.S. begins Fannie Mae, Freddie Mac reform journey

By Al Yoon

NEW YORK (Reuters) - U.S. lawmakers on Wednesday will open a debate that has stymied them for at least a decade: the future of Fannie Mae and Freddie Mac, the giant housing finance agencies nearly felled by the credit crisis.

Congress is facing the daunting task of remaking the companies after steep mortgage losses led the Treasury in September to seize control of the two financing agencies. The stakes are high, with President Barack Obama counting on the reach of Fannie Mae and Freddie Mac to carry out his plans to improve housing affordability for nine million Americans.

Decisions made by Congress will affect the U.S. housing market for years to come. President Franklin Roosevelt's creation of Fannie Mae in 1938 to develop the mortgage market during the Great Depression helped standardize the 30-year fixed-rate mortgage in the United States and generate a massive expansion in homeownership -- to 66 percent in 2000 from 44 percent in 1940.

With the housing market now facing more than a 30 percent drop in home prices since 2006, and record foreclosures, the task of finding common ground between public roles and private enterprise will stretch into the next decade, analysts said.

What lawmakers and regulators agree is that Fannie Mae and Freddie Mac probably can't retain traditional models that long rewarded shareholders at the risk of taxpayers. Since their government takeover last year, Fannie Mae and Freddie Mac have already accepted $85 billion in taxpayer funds out of a pledged $400 billion.

All options will be considered in debate that has no expected timeframe for resolution, said Paul Kanjorski, the Pennsylvania Democrat who chairs the U.S. House subcommittee holding the hearing.

"This is not something that we should make sudden turns and changes on," since Fannie Mae and Freddie Mac are "essential" to the housing recovery, Kanjorski said in an interview.

"With all their imperfections, I'd rather live with those in the short- to medium-term to get the economy back."