(TheNicheReport.com) More than three years have passed since the U.S. government placed mortgage giants Fannie Mae and Freddie Mac into conservatorship status pending a reassessment of the deep financial damage they managed to bring upon them during the heady days of the American housing bubble. Now the government agency assigned to oversee Fannie and Freddie wants both companies to set off on a strategic course of action to accomplish certain goals.
The Federal Housing Finance Agency (FHFA) has approached Congress with a three-goal plan for both agencies. The two legislative bodies addressed by acting FHFA director Edward J. DeMarco are the House Financial Service and Senate Banking, Housing and Urban Affairs committees. In his letter to congress, DeMarco proposes the following three objectives for Fannie and Freddie to achieve:
- Revamp the secondary mortgage market
- Reduce the operations of both companies
- Keep the status quo on foreclosure prevention and mortgage credit
DeMarco's letter to Congress is a bit on the somber side, as it reminds lawmakers that the massive losses suffered by Fannie and Freddie are almost irreversible at this point, and that keeping the mortgage companies functioning at this time comes at a great expense to the government and taxpayers. One of the ways in which the goals above can be accomplished would see more private investors stepping in to take away some of the mortgage debt burden from Fannie and Freddie. The two companies currently hold significant interest in about three quarters of all residential loans made on American real estate.
For many mortgage borrowers, the names Fannie Mae and Freddie Mac have always been synonymous with the U.S. government. During the runaway growth of the two enterprises in the 1990s, both companies utilized marketing efforts to bring public awareness to their essential independence from government control. Fannie and Freddie have always been government-sponsored enterprises (GSEs), but prior to the meltdown of the credit markets in 2008 both companies had enjoyed a certain independence that allowed them to become darlings of Wall Street. When the housing bubble burst in 2008, shares of both GSEs suffered to the point of becoming delisted in 2010. Like some of the major American lenders, Fannie and Freddie required a major bailout from the federal government in order to stay afloat.The letter to Congress points to a new era for both companies, in which shareholder profits will no longer be the focus of their operations. It will also create a new transparent market for investors to participate in, where the monthly payments made by borrowers can be tracked directly by investors. The involvement of the GSE mortgage companies in this new secondary market is unclear at this point.