Mortgage companies Fannie Mae and Freddie Mac won’t exist any more?

Lawmakers are pressing Fannie Mae and Freddie Mac to rearrange their operations as the two housing companies are seeking more government financing. One option considered is the merger of the two companies breaking them up or reshaping their missions, reports Bloomberg.

 “It’s highly unlikely that they would return to the way they used to be,” said Ira Jersey, the head of U.S. interest rate strategy at RBC Capital Markets in New York. 

Internal discussions of executives at Fannie prompt that they consider the possibility to take over McLean, Virginia-based Freddie’s operations.

Under the terms of the agreement signed by the government the two mortgage-financing companies will be given $400 billion by the Treasury through December 31. Some experts suppose the agreement will probably be extended by Congress before the end of the year and the government- sponsored enterprises will likely undergo a massive re-write into some new structure.

With the merger regulators will be able to reduce Fannie and Freddie’s staff of 11,000 people, get rid of underperforming mortgage assets and reduce the bureaucracy of running two companies with identical functions, said Christopher Whalen, co-founder of Institutional Risk Analytics in Torrance, California.

“It’s got to happen; we’re not going to put them back the way they were,” Whalen said of a merger. “The only way we’re going to be able to manage them is if we squeeze every last ounce of savings out of the administrative side and just focus on trying to keep the loss number under control.”

One scenario proposed by House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, is that a government trust fund would assume the companies’ responsibilities to subsidize rental housing and a remaining company would continue to do business in the private mortgage market. For these purposes one company would need to be put into receivership, a process similar to bankruptcy. According to Armando Falcon, who was Fannie and Freddie’s government supervisor from 1999 through mid-2005, the fastest way would be for “one to buy all the assets and assume all the liabilities of the other, place the rest of it into receivership and wind it down.”