National Mortgage Reinsurance Corporation

Are Fannie Mae and Freddie Mac Going Away?

by Marilyn Wilson on April 1, 2016

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A new paper issued by a robust group of government and economic leaders in the real estate economy have outlined a proposal to merge Fannie Mae and Freddie Mac into a new government-owned corporation.  Currently both organizations are government-regulated, but privately owned. According to the paper the goal of the proposal is to overhaul the mortgage lending process to accomplish the following: “This would facilitate a deep, broad and competitive primary and secondary mortgage market; limit the taxpayer’s risk to where it is absolutely necessary; ensure broad access to the system for borrowers in all communities; and ensure a level playing field for lenders of all sizes.” The new government-owned corporation to be name the National Mortgage Reinsurance Corporation would continue to provide the same services of providing federal guarantee on mortgage-based securities as well as issuing affordable loans to consumers. According to the paper: “The NMRC would purchase conforming single-family and multifamily mortgage loans from originating lenders or aggregators, and issue securities backed by these loans through a single issuing platform that the NMRC.” The paper suggests that the new entity would be able to encourage more investment by charging lower fees than the current system when investors are more willing to take on risk, but higher fees when investors are more cautious, the Journal reported. The NMRC would differ greatly from its predecessor organizations. “The NMRC would differ from Fannie and Freddie, however, in several important respects. It would be required to transfer all non- catastrophic credit risk on the securities that it issues to a broad range of private entities. Its mortgage-backed securities would be backed by the full faith and credit of the U.S. government, for which it would charge an explicit guarantee fee, or g-fee, sufficient to cover any risk that the government takes. And while the NMRC would maintain a modest portfolio with which to manage distressed loans and aggregate single- and multifamily loans for securitization, it cannot use that portfolio for investment purpose.” As some of you may know, I am on the Board of Directors of the National Small Business Association.  From my recent experiences working with this group and lobbying on the Hill, I would highly doubt that a change as fundamental as this will be accomplished with our current administration and Congress. I would love to get your opinion about the inherent risks and rewards of this proposed solution.

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