Shaun Donovan, secretary of the US Department of Housing and Urban Development (HUD) told HousingWire that extreme measures are to be avoided with the fates of Fannie Mae and Freddie Mac. HUD is working with the White House and the Treasury Department to draft a proposal outlining the fate of the government-sponsored enterprises (GSEs), Shaun Donovan told HousingWire today at the National Association of Real Estate Brokers (NAREB) convention in Fort Worth, Texas. In the Dodd-Frank financial reform, passed by Congress and signed by President Obama in July, a process was put in place for the government to decide what to do with Fannie and Freddie by January 2011. “We have a detailed and thoughtful process we’re working on with the White House, with the Treasury to create a plan for the GSEs and the housing finance system. We’re also starting a series of forums this month to get public information on what they should look like,” Donovan told HousingWire. Treasury secretary Timothy Giethner made similar comments this week, explaining that the government is working on the problem. Critics of the bill have pointed out that it does not directly address the situation at Fannie and Freddie. Other commentators have put out many theories on what will become of them, everything from a complete privatization to a total wind-down. Donovan told HousingWire that such extreme action would cause more harm to the market, hinting at a compromise. “What’s leading to the continued losses of Fannie and Freddie are loans that were on their books before this president ever came into office or before they were taken into conservatorship,” Donovan said. “Those legacy assets are what’s causing the problem today. If we took some of the extreme measures that some of the critics are talking about, we would actually hurt taxpayers, because we would hurt the housing market, and we would see further declines in house prices.” Fannie Mae earnings are due out this week, and Freddie after. In May, Fannie posted a $11.5bn net Q110 loss, and Freddie reported a $6.7bn Q110 loss. The conventional single-family serious delinquency rate at Fannie fell 15 basis points (bps) to 5.15% in May, the latest month of delinquency data. A year ago, the delinquency rate was 3.68%. The single-family delinquency rate for Freddie decreased to 3.96% in June from 4.06% in May. Donovan said today Fannie Mae and Freddie Mac are not only making responsible loans but profitable ones. Even if they both stopped doing business today, he said, those legacy loans would still be coming back to the taxpayer. “In fact, it would be worse because we would see significantly more trouble in the housing market if we were to withdraw credit completely,” Donovan said. “A lot of those proposals just don’t make sense when you think through exactly what’s causing the problem, which are these legacy loans.” Write to Jon Prior.