Via Wall Street Journal.

According to former Federal Reserve Chairman and current Obama adviser Paul Volcker, Fannie and Freddie need to go.

Mr. Volcker: People talk about Fannie Mae and Freddie Mac. That’s a challenge for next year and year following. We are going to have to reconstruct the whole mortgage market and you can’t do that overnight. The mortgage market now is almost a wholly owned subsidiary of the United States government. Almost all the mortgages made now are insured by the government, bought by the government, and the guys at Fannie Mae and Freddie Mac are the market.

Not much exists without the government running it. I don’t think that’s what we want. A lot of problems surround the whole mortgage market. It’s clear Fannie Mae and Freddie Mac need to go. We don’t need these hybrid institutions. You don’t know whether they should be responsible to the government or to stockholders. It’s an unfortunate invention. (emphasis mine)

Oh great!

Yeah, it needs to be done but, holy mackerel, “reconstructing the whole mortgage market” will add a ton of uncertainty to the housing market for a year or two.

The uncertainty will be bad for the housing market and will likely delay a strong housing recovery until the reconstructing is done and the new rules of the game are known.

P.S. My guess is the politicians will ultimately construct a mortgage market that lets the too-big-to-fail banks make a ton of money. I say that because the recent Financial Regulation Reform bill ended up being very easy on Wall Street.

ADDED: More on Congressional efforts for “a complete restructuring of the tangle of housing finance tools.” I don’t have a good feeling about this.