Fannie Mae Regulator Plans Securitization for Post-GSE World

Fannie Mae and Freddie Mac will create a common platform for issuing mortgage-backed securities as they wind down operations and plan for a future in which the two companies no longer exist, their regulator said.

The government-owned enterprises also will start sharing risk with private financiers in the single-family loan market, aim to reduce their multifamily-housing business by 10 percent and continue raising fees they charge to guarantee securities, Edward J. DeMarco, the Federal Housing Finance Agency’s acting director, said yesterday on a conference call with reporters.

DeMarco unveiled his agency’s goals for Fannie Mae and Freddie Mac as the two companies head into their fifth year under U.S. conservatorship. FHFA is shrinking operations while waiting for President Barack Obama and Congress to move forward with a broader overhaul of the nation’s housing-finance system.

“One of the challenges that everyone has in conceiving of housing-finance reform and moving to a post-conservatorship world is, where’s the plumbing? Where are the rules? Where are the standards?” DeMarco said. “What we’re trying to do with these strategic goals is to build out that infrastructure and those standards so it would ease the transition.”

Policies aiding the return of private capital to mortgage finance will be positive for investors, according to Jaret Seiberg, senior policy analyst at Washington Research Group, a unit of Guggenheim Securities LLC.

New Opportunities

“This suggests opportunities for the big banks and for fixed-income investors looking for new ways to invest in the mortgage space,” Seiberg wrote in a market commentary.

Washington-based Fannie Mae and Freddie Mac of McLean, Virginia, buy mortgages and package them into securities on which they guarantee principal and interest. The companies, seized by federal regulators amid soaring losses in 2008, returned to profitability last year after drawing $190 billion in taxpayer aid.

Their new joint securitization company will have its own chief executive officer and chairman, and will be funded by Fannie Mae and Freddie Mac, DeMarco said yesterday. It will create a single standard for issuing securities that could survive independently if the two companies no longer exist, he said.

The two enterprises this year also will aim to execute $30 billion each in transactions in which they share the risk of backing single-family loans with private participants in the market. Those could involve mortgage insurance or include the issuance of different types of securities.

“What we’re looking for is to have some portion of the risk sold off to private owners and that way reduce the exposure of the taxpayer and demonstrate the viability of these types of transactions,” DeMarco said on the call.

Fannie Mae and Freddie Mac will also try to reduce their backing of multifamily loans by 10 percent this year, largely through raising prices and tightening underwriting, he said. They’ll also attempt to sell off at least 5 percent of the illiquid assets in their retained portfolios.

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