Fannie Mae and Freddie Mac will begin winding down, with a new company taking their place. That’s the plan unveiled by the acting director of the Federal Housing Finance Administration — the agency that has overseen Fannie and Freddie since they were taken over by the government in 2008.
In a conference call with reporters, Edward DeMarco outlined the plan to create a new company that would combine the mortgage-securitization operations of the two government-owned enterprises.
For the most part, Fannie and Freddie do the same thing: Buy mortgages from lenders (the “secondary mortgage market”) and repackage them into securities that can be bought and sold as stocks. They were private, government-sponsored enterprises until 2008, when they essentially took a bullet for the housing-finance industry and had to be taken over by the federal government.
When private lenders fled the market, it left the government as the dominant player; it now owns 90-something percent of the secondary mortgage market. And it’s not interested in being such a major player.
So the goal is to pull back Fannie and Freddie’s involvement, while still keeping some government backing available. Hence, DeMarco’s plan.
A few highlights:
- It will create a new company — completely separate from Fannie and Freddie — that would combine many of the back-end operations of the the two companies.
- It would continue to increase the fees charged for government guarantees to help encourage private companies to take up the slack.
- It will direct Fannie and Freddie to each sell at least $30 billion of the mortgage-backed securities they hold to private investors, taking taxpayers off the hook for those.
- It will reduce the companies’ presence in the multifamily housing business by 10 percent.
It’s still a plan, and it isn’t expected to take effect until next year, so many things could change. So keep an eye out as the details emerge.