In an appearance on CNBC this morning, House Financial Services Committee Chairman Barney Frank (D-Mass.) made an unusual claim about the mortgage giants Fannie Mae and Freddie Mac. The two mortgage lenders are essentially a "public policy instrument of the government," Frank said.
On Christmas Eve, the Treasury Department lifted a $400 billion cap on the lifeline for the two companies. The move was viewed by many -- including investors -- as a indicator that the two firms will continue to receive billions in direct government support.
Here's Frank:
"Remember now that Fannie and Freddie have been converted...Part of the losses of Fannie and Freddie are that since the housing collapse, Fannie Mae and Freddie Mac...have become a kind of public utility."
Backing Fed Chairman Ben Bernanke's recent comments, Frank argued that regulations -- or lack thereof -- not interest rates were responsible for the financial crisis and housing bubble.
Frank also brushed aside suggestions that Congress could soon pass legislation that would reduce mortgage principal for struggling homeowners. Such a program would violate contractual agreements between lenders and borrowers, Frank argued, and could only work if homeowners went into bankruptcy.
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