03/24/2010 05:12 am ET | Updated May 25, 2011

Barney Frank: Abolish Fannie and Freddie

House Democrat Barney Frank vowed on Friday to get rid of mortgage giants Fannie Mae and Freddie Mac as part of an overhaul of the country's taxpayer-supported system for financing home loans.

"The remedy here is to, in fact, as I believe this 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, chairman of the House Financial Services Committee. "That's the approach, rather than a piecemeal one."

Frank's comments about the government-controlled entities, which help expand home ownership by buying up loans from lenders, come amid the Obama administration's renewed push to re-regulate Wall Street. Last week, the administration announced a proposed levy on the nation's biggest financial institutions. This week, Obama pushed for further measures to reduce risk-taking by megabanks.

Fannie and Freddie, though, have thus far escaped the chopping block. While Congressional Democrats and the administration push forward on measures to rein in Wall Street and protect consumers, there's been little public focus on what to do about the bailed-out mortgage giants, which were seized by federal regulators in 2008 due to their risk of failure.

Frank made his comments during a Congressional hearing on executive compensation after Republicans questioned why salaries for Fannie and Freddie executives weren't being slashed.

Effectively nationalized in September 2008, taxpayers have pumped about $111 billion into the mortgage-finance firms. Last month, the Obama administration, in a highly-debated move, promised an unlimited credit line to back up the firms, regardless of how high their losses eventually reach.

"Yeah, I think they got too much money over the Christmas Eve period," Frank said Friday of the Obama administration's backstop.

By buying up mortgages from lenders, the firms control about $5.5 trillion in home mortgages, according to their federal regulator. That's 46 percent of all outstanding mortgage debt in this country, as of Dec. 10. Their share of the mortgage market is nearly double what it was 20 years ago. As foreclosures increase, Fannie and Freddie's losses will continue to rise.

"Because of their federal backing, Fannie Mae and Freddie Mac provide capital and guarantees to the mortgage market at lower prices than private financial institutions can offer, which ultimately transfers risk from the two entities to taxpayers," the Congressional Budget Office said in a report this month.

To keep the housing market from imploding, the Treasury Department and the Federal Reserve under the last administration began buying up Fannie, Freddie, and Ginnie Mae mortgage-backed securities and their debt. It also began buying up debt issued by the Federal Home Loan Banks, another source of taxpayer-funded credit for banks.

All told, since September 2008 the federal government has purchased $1.52 trillion worth of their mortgage-backed securities and debt.

The Congressional Budget Office pegged the government's losses this year on Fannie and Freddie at $291 billion. They're expected to cost taxpayers an additional $99 billion in the coming decade, for a grand total loss of $390 billion.

The Obama administration expects to outline its future plans for Fannie and Freddie later this year.