Bloomberg News

Fannie Mae and Freddie Mac Require Investment, DeMarco Says

February 24, 2012

Feb. 21 (Bloomberg) -- With no plan from Congress or the Obama administration to shutter Fannie Mae and Freddie Mac, the companies’ regulator told Congress today it will expand its oversight with a strategic plan to develop new systems and standards for home loans.

The companies, which own or guarantee most of the nation’s mortgages, exist in an extended policy limbo that poses new risks to taxpayers and the housing market, said Edward J. DeMarco, acting director of the Federal Housing Finance Agency. The mandate to protect taxpayers must be balanced with the need to invest in staff and infrastructure, he said.

“Conservatorship can’t go on forever,” DeMarco said today in a telephone interview. “If we want to have a secondary mortgage market in the future without Fannie and Freddie we have to start investing.”

The companies are “complex financial institutions with complex business processes, information technology structures and important human capital,” he said.

Conservatorship, an emergency, short-term fix established by the Housing and Economic Recovery Act, has evolved into a long-term government operation. In a strategic plan sent to Congress today, DeMarco said he will begin building a single system for securitizing home loans and set standards for how those loans are managed.

Washington lawmakers began last year with sweeping plans to wind down Fannie Mae and Freddie Mac. Treasury Secretary Timothy F. Geithner offered three options for reducing the government’s footprint and has promised a more detailed plan in the coming months. The House and Senate so far have failed to reach consensus on any legislation.

No Resolution

Noting that there is “no near-term resolution in sight,” DeMarco sent his plan to lay a foundation for whatever system Congress and the administration eventually agree upon.

“We want to start to shape the path forward but to do so in a way that’s consistent with whatever policy path Congress ends up enacting,” DeMarco said.

He reiterated plans to raise fees the companies charge to guarantee home loans and continue their efforts to prevent foreclosure.

Fannie Mae and Freddie Mac have survived on taxpayer aid since September 2008, when catastrophic losses from failing home loans forced them into government conservatorship.

Since then, the companies have drawn more than $180 billion from a U.S. Treasury Department lifeline. Today, the companies guarantee about $100 billion worth of new mortgages a month, about three-fourths of all single-family home loans.

The mortgage-bond market wouldn’t exist without the enterprises, the FHFA report found. “No private sector infrastructure exists today that is capable of securitizing the $100 billion per month in new mortgages being originated. Simply shutting down the enterprises would drive up interest rates and limit mortgage availability.”

--Editors: Anthony Gnoffo, Gregory Mott

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net;

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net.


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