Regulators Jumping on the 'Overhaul Fannie/Freddie' Bandwagon (FNM, FRE)

During a Congressional hearing on Tuesday, Treasury Secretary Timothy Geithner agreed with House lawmakers view that an overhaul of the U.S. housing finance market is needed, as well as a look at the role which Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) are currently playing. While it is agreed that something needs to be done to change the influence of the housing lenders, the highly volatile issue has elicited a swell of varying opinions from members of Congress.

Housing Financial Service Committee Chairman Barney Frank, Democratic Representative from Massachusetts, said that policymakers need to overhaul the housing finance system as it was put into place “without and overall vision.” Frank also suggested that Fannie and Freddie may need to be wound down and said that “All agree that simply abolishing Fannie and Freddie will not be enough for this committee’s role.

The two housing lenders have been under government control since their meltdown in September 2008, but were left out of the overhaul regulation due to the political difficulties that they represent.

Geithner iterated that abolishing the two companies (which received $127 billion combined to stay afloat) is not a possibility right now. Frank, however, did add that it should take only a matter of months to draft legislation on the future of Fannie and Freddie.

“There’s a huge compelling need that we design the successor system,” Geithner said. “You have to look at the Federal Home Loan Bank structure as well to make sure it can play the role it was designed to play without leaving us with too much risk in the future.”

Shares of Freddie Mac are up 0.8% to $1.30 today while shares of Fannie Mae are up 1.8% to $1.11.

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