Bill introduced to merge Fannie Mae & Freddie Mac – realistic?

Merging Fannie and Freddie

Today, legislation was introduced by Republican Representative Gary Miller of California and Democratic Representative Carolyn McCarthy of New York to merge Fannie Mae and Freddie Mac, creating a single entity so that the government held organization can collectively purchase mortgages and sell them to investors as government backed securities.

The bipartisan effort seeks to operate under a not-for-profit setup, creating a “secondary market facility” for residential mortgage loans. Operation costs would be supported by buying home loans then pooling them into bonds sales which would generate income. All profits would be returned back into the U.S. Treasury and banks would pay a “guarantee” fee on loans, also financially supporting the new entity. The plan claims to address severe losses by requiring investors to pay a fee to finance an insurance fund.

Rep. Miller said, “we don’t want Congress meddling,” so the bill notes the new operation would be governed by a presidentially appointed board.

NAR and NAHB showed up to support

The National Association of Realtors and the National Association of Home Builders were present today to support the Miller-McCarthy bill.

House Financial Services Committee approved eight bills targeting the overhaul of Fannie and Freddie, one of which drastically cuts executive pay.

Weren’t Fannie and Freddie winding down?

In April of this year, we reported on eight bipartisan bills that sought to reduce Fannie Mae and Freddie Mac’s role in the mortgage industry. The bills were approved by the House Financial Services Committee, based on a white paper outlining three options for long term mortgage overhaul, authored by the Obama Administration, all seeking to wind down Fannie Mae and Freddie Mac dominance in the mortgage market.

Republican Representative Scott Garret of New Jersey who is leading efforts to eliminate Fannie Mae and Freddie Mac said today that the bill will not be heard before House Financial Services Committee, a critical path to becoming law.

Real estate just wants another bailout?

Garret said he is not surprised that real estate insiders such as mortgage lenders, investors and others in the housing business want to preserve as much of the current system as they can. “They wanted to be bailed out before and they want a system again where they can be bailed out.”

Unclear future, is this just an exercise in futility?

It is unclear the future of Fannie and Freddie given that bills have already been approved to wind the organizations down based on Obama’s recommendations and reduce their role in mortgage given that they now back roughly 90% of residential mortgages.

It appears that policy makers are in limbo and some believe these are stall tactics as no one wants to be responsible for further decline in real estate. The ultimate irony is that Republicans laughed when Barney Frank (of all people) proposed to abolish Fannie and Freddie and create a single new entity, yet here we are…