More Changes Ahead for Freddie Mac and Fannie Mae
A proposal released Wednesday by the Mortgage Bankers Association is asking congress to split Freddie Mac and Fannie Mae. The proposal outlines a detailed plan for restructuring the U.S. mortgage market by establishing a “proposed framework for a refined government role in the secondary mortgage market designed to ensure liquidity for mortgages without presenting unnecessary risks for the taxpayer”.
Fannie Mae and Freddie Mac own or guarantee about 5.4 trillion in mortgage debt and have received 96 billion in Federal aide since last fall when the government seized the two groups through a legal process known as conservatorship.
The companies have received nearly 10 times that amount in additional support through purchases of debt and mortgage-backed securities by the Treasury and the Federal Reserve. Freddie Mac and Fannie Mae debt is not officially backed by the government, but has been effectively guaranteed since the take over.
The plan outlined by the MBA would replace Freddie Mac and Fannie Mae with several regulated private companies known as the Mortgage Credit Guarantor Entities (MCGE). “Each security would have two components – a loan level guarantee provided by a privately-owned, government-chartered and regulated mortgage credit-guarantor entity (MCGE) and a security-level, federal government-guaranteed wrap”.
These smaller companies will have a minimal investment portfolio unlike Freddie Mac and Fannie Mae who made massive bets on mortgage and associated derivitives.
New guidelines will prohibit Freddie Mac and Fannie Mae from their powerful lobbying operations, opening the competition for the smaller companies.
The Federal government has delayed any changes in the mortgage market regarding Freddie and Fannie because the administration is using the government-backed companies to help with foreclosure-prevention efforts and to stabilize the housing market.
Together with the Federal Housing Administration, Fannie and Freddie now purchase or guarantee nearly nine in 10 new mortgages, making any changes almost impossible at this time.
The total amount of losses suffered by Freddie and Fannie will not be known until the housing market is fully stabilized. Bose George, an analyst for Keefe, Bruyette & Woods in his estimate says, “losses could reach $175 billion by the end of 2010″.
The administration seems unlikely to seek an extension from congress for emergency authority that would allow the U.S. Treasury to buy the agencies debt, this expires Dec. 31.
Related posts:
- Treasury May Buy Mortgage Debt
- Freddie Mac Needs Another Bailout
- Freddie Mac Raises Mortgage Fees
- Fannie and Freddie Planning to Aide Lenders
- More Mortgage Woes Ahead
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Don’t be fooled. The MBA plan lets the big banks force taxpayers to guarantee their mortgages. Meaning when one of their loans go bad, they don’t lose a dime and its us taxpayers who pay for the loss. The MBA plan privatizes profits, socializes losses and will lead to a financial fiasco that will make the subprime meltdown look like small potatoes.