Fannie & Freddie: If You Can’t Kill Them, Merge Them?

http://blogs.wsj.com/economics/2016/03/23/fannie-and-freddie-if-you-cant-kill-them-merge-them/


A group including some of the chief architects of the Obama administration’s housing policy released a paper Wednesday outlining a new proposal for how to deal with mortgage-finance giants Fannie Mae and Freddie Mac.


The key takeaway: Instead of winding down Fannie and Freddie, the companies would be merged into a government-owned corporation that would take over the responsibilities of buying mortgages, wrapping them into securities and guaranteeing investors against default. That’s the core of the housing finance system that helps to make 30-year fixed-rate mortgages possible in the U.S. but not elsewhere.


The paper is an important shift for some of the five authors, who include Jim Parrott, a former Obama White House housing adviser; Moody’s Analytics chief economist Mark Zandi; Barry Zigas, director of housing policy at the Consumer Federation of America; and Lewis Ranieri of Ranieri Strategies, who co-invented the mortgage-backed security. The fifth author is Gene Sperling, former director of the National Economic Council for presidents Barack Obama and Bill Clinton and a close adviser to Hillary Clinton, though the paper says “the ideas expressed are purely his own.”


The new government corporation, which the authors call the National Mortgage Reinsurance Corporation, would be required to sell to investors most of the risk that a mortgage defaults, though the government would ultimately guarantee that mortgage bonds got paid on time.