"Rather than beginning to extricate itself from Fannie Mae and Freddie Mac as it is with other bailed-out businesses, the Treasury Department on Christmas Eve removed a $200 billion limit on aid" to Fannie Mae and Freddie Mac, "the linchpins of the American housing market," and "promised to cover their losses through 2012," according to an article by Dawn Kopecki in yesterday's Bloomberg News.

Earlier, the article continued, "the Federal Reserve extended a mortgage-bond purchase program by three months, through March."

"In February 2003," the article continued, "their regulator issued a report saying the companies were taking on too much risk by using implicit government backing to plunge deeper into the mortgage market. The government-sponsored enterprises would pose a systemic threat to the economy in the 'remote' chance that either failed, Armando Falcon told the Bond Market Association the same day. The Bush administration, considering his report a potential threat to financial markets, asked him to resign. Five years later, regulators seized the mortgage-finance companies. Since then, leaders from former Federal Reserve Chairman Alan Greenspan to Warren Buffett have argued the companies can't be sustained in their dual roles - a for-profit enterprise beholden to shareholders and a tool of housing policy - and should be nationalized or sold."

"Nothing has happened," the article declared, adding that "Instead, Fannie Mae and Freddie Mac, which buy home mortgages from banks and package them into bonds sold to investors, have been bailed out with $1.5 trillion in direct and indirect government aid. The Obama administration is banking on the companies to help end a three-year housing slump. The president is delaying plans to lay out a new framework for them in February, and Congress hasn't scheduled hearings on their future."

Paul Miller, a former examiner for the Federal Reserve Bank for Philadelphia and now a bank analyst at FBR Capital Markets in Arlington, Virginia, told Bloomberg News that ""They're going to get a giant pass on all of this," adding that it would be "three to five years before their fate is determined."

Meredith Whitney, founder of Meredith Whitney Advisory Group LLC in New York, told Bloomberg News that the approaching withdrawal of Fed support in the form of the mortgage-bond purchases risks "a very, very scary situation," and mortgage rates would soar, endangering the economic recovery, if private buyers failed to step in to buy the companies' debt.

The article said that the status of Fannie Mae and Freddie Mac is not dealt with in the proposed overhaul of the financial regulatory system that the Senate plans to take up next year and that while Treasury Secretary Timothy Geithner said in June that the companies' future would be discussed in the president's budget outline in February, the Treasury in its Dec. 24 statement promised only to provide a "preliminary report" by then.

Fannie Mae and Freddie Mac own or guarantee about $5.5 trillion of the $11.8 trillion in U.S. residential mortgage debt and have financed as much as 75 percent of new U.S. mortgages this year. The companies have lost a combined $188.4 billion in the past nine quarters. The federal government now holds almost 80 percent of the equity in each of the entities.