USA: BLOOMBERG,Fannie, Freddie Nationalization May Be an Option, Bernanke Says

Fannie, Freddie Nationalization May Be an Option, Bernanke Says

By Dawn Kopecki and Scott Lanman

July 16 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said nationalizing Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, is among a number of long-term options lawmakers can consider to reduce taxpayer risk.

``There certainly are a number possibilities ranging from outright nationalization, to privatization to breaking them up,'' Bernanke told members of the U.S. House Financial Services Committee in Washington today. ``In the near-term, thinking about the needs of the housing market, I think the right solution is to keep them in their current form but to provide very strong oversight that will assure adequate capital going forward.''

Fading confidence in Fannie Mae and Freddie Mac has ``real effects'' on their ability to borrow money, and Congress must work to reassure Americans the companies are safe, Bernanke said. Restoring confidence in the two government-sponsored enterprises, which own or guarantee almost half of the $12 trillion in U.S. home loans outstanding, is critical to their solvency and to the mortgage markets, Bernanke said.

``As their stock prices fall, it's difficult for them to raise capital,'' Bernanke said. ``If their debt spreads widen, it will increase their borrowing costs.''

Fannie Mae and Freddie Mac are in ``no danger of failing,'' Bernanke said. He said the Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac, assured him that the companies are ``fine and they can continue to operate and there's nothing about to happen,'' he said.

Bernanke repeated his concern that the housing market is a ``central element in this whole crisis.'' He said anything to strengthen housing finance would help, and that Congress ``needs to think hard about how to restore confidence in the GSEs.''

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.