Fannie and Freddie face fragmentation

A bipartisan move to overhaul the GSEs is in the works

Fannie and Freddie face fragmentation
A bipartisan overhaul of the behemoth secondary mortgage market is in the horizon as Tennessee Republican senator Bob Corker and Virginia Democrat Mark Warner attempt to legislate reforms to foster competition in the trillion-dollar secondary mortgage market.

Quoting sources close to the matter, Bloomberg reported that politicians on both sides of the partisan fence are making moves to abolish the duopoly of Fannie Mae and Freddie Mac, partly due to issues raised with the companies’ resorting to taxpayer rescues when they run into trouble. The US government has so far injected almost $200 billion into their system, after they were taken into conservatorship nine years ago.

Bloomberg also reported that Corker and Warner are considering splitting Fannie and Freddie’s single-family lines from their multifamily businesses, which finance apartment rentals. Further divisions could also be made in the single-family business to break it into smaller companies.

Fannie and Freddie account for more than $4 trillion in mortgage securities.

A measure to reduce barriers to entry was proposed through allowing private firms access to Fannie and Freddie’s infrastructure, which includes intellectual property used to securitize mortgages and the data they use to determine the risk profile of specific loans.

In a speech last week before the Mortgage Bankers Association, Warner said that he and Corker had arrived at a consensus over some of the proposed solutions to the mortgage market conundrum, among them developing a system that will keep the 30-year mortgage intact.

Meanwhile, Corker said in a statement that “there continues to be strong, bipartisan consensus in Congress that we must act to reform our nation’s housing finance system and protect taxpayers from future economic downturns.”

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