Bernanke Offers Plan for Securitzing Mortgages

Speaking to a mortgage-finance symposium in Berkeley, Calif., by videoconference Friday, Federal Reserve Chairman Ben Bernanke described a plan for managing the mortgage-securitization crisis.

He suggested creating a government bond insurer for mortgage funding.

“Government likely has a role to play in supporting mortgage securitization, at least during periods of high financial stress,” Bernanke said.

Bernanke urged continued government support for Fannie Mae and Freddie Mac.

“Their ability to continue to securitize when private firms could not, did not appear to result from superior business models or management,” Bernanke said. “Instead, investors remained willing to accept GSE mortgage-backed securities because they continued to believe that the government stood behind them.”

He suggested that making Fannie and Freddie government-owned cooperatives or public utilities might be the best answer.

“A public-utility model might allow the enterprise to retain some of the flexibility and innovation associated with private-sector enterprises in which management is accountable to its shareholders,” Bernanke said.

Source: The Wall Street Journal, Sudeep Reddy (11/01/08)

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