Housing regulator releases plan to wind down Fannie, Freddie

“Simply shutting down the enterprises would drive up interest rates and limit mortgage availability.”

The plan also suggests establishing loss-sharing arrangements where private investors would bear some or all the credit risk in securitizing loans and expand reliance on mortgage insurance possibly through deeper mortgage insurance coverage on individual loans.

{mosads}Congressional Democrats have been pressing DeMarco to consider mortgage principal write-downs while taking other steps to help the housing market recover. DeMarco has been reluctant to pursue options he argues could cost taxpayers more money. 

Meanwhile, Republicans have called for the elimination of Fannie and Freddie. 

“I’m glad to see he shares my belief that the perpetual state of uncertainty surrounding the future of the GSEs and our country’s housing finance system has gone on for way too long,” said Rep. Scott Garrett (R-N.J.), chairman of the House Financial Services subcommittee on Capital Markets and Government-Sponsored Enterprises.

“Two of Mr. DeMarco’s stated goals in the plan — to build a new infrastructure for the securitization market and to shrink the dominance of the GSEs — track closely to the ideas I have been championing for years,” he said. 

“I’m optimistic we can work closely together to implement our shared vision for the future of housing finance.”

The report emphasizes that the steps in the plan are in line with each of the housing finance overhaul plans included in the white paper produced last year by the Treasury and Housing and Urban Development departments as well as with several congressional proposals. 

That plan presented three options to gradually reduce the government’s involvement over the course of at least five years. 

Congress has yet to agree on a particular course of action. 

“This plan explores risk-sharing and ways to earn back private capital in housing, both important elements for reform included my legislation,” said Sen. Bob Corker (R-Tenn.), a member of the Senate Banking Committee. 

“I hope these efforts will generate support for an approach acceptable to both parties that will unwind Fannie and Freddie over time and gradually end the government’s dominant role in housing,” he said. 

Fannie Mae and Freddie Mac were placed into conservatorship on Sept. 6, 2008, and have since received more than $180 billion in taxpayer support, according to the FHFA.

Fannie and Freddie have dominated the mortgage market — backing about 75 percent of all home loans — as banks retreated following the financial crisis.

“This plan envisions actions by the enterprises that will help establish a new secondary mortgage market, while leaving open all options for Congress and the administration regarding the resolution of the conservatorships and the degree of government involvement in supporting the secondary mortgage market in the future,” DeMarco said. 

“And though the enterprises may well cease to exist at some point in the future, at least as they are known today, the country’s $10 trillion single-family mortgage market will not go away,” he said. 

“Therefore, an orderly transition to a new structure is needed.”

DeMarco also continued to emphasize that the search is ongoing for two new chief executives for Fannie and Freddie and that a new compensation structure that eliminates bonuses is nearly complete. 

The agency came under fire from Congress for providing millions in bonuses. But DeMarco has insisted that the salaries are needed to attract top-notch employees to oversee trillions in assets. 

The new structure will be all salary, some paid currently, while a larger portion will be deferred. The deferred salary will be at-risk, meaning it could be reduced but not increased, from the target amount, and reductions would be based on shortcomings in achieving individual performance goals and corporate conservatorship goals tied to the plan.