Two U.S. senators working on a bipartisan overhaul of Fannie Mae and Freddie Mac are seriously considering a plan that would break up the mortgage-finance giants, according to people with knowledge of the matter.
The proposal by Tennessee Republican Bob Corker and Virginia Democrat Mark Warner would attempt to foster competition in the secondary mortgage market, where loans are packaged into bonds and sold off to investors, said the people.
Corker and Warner’s push to develop a plan marks Congress’ latest attempt to figure out what to do with Fannie and Freddie, an issue that has vexed lawmakers ever since the government took control of the companies in 2008 as the housing market cratered. The lawmakers’ plan is still being developed, and a Senate aide who asked not to be named cautioned that no decisions had been made on any issues.
The stakes of changing the housing-finance system are enormous. Fannie and Freddie underpin much of the mortgage market by buying loans from lenders, wrapping them into securities and providing guarantees in case borrowers default. Together, the companies back more than $4 trillion in securities.
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One long-stated desire for some politicians on both sides of the aisle has been to end Fannie and Freddie’s duopoly, partly due to concerns that their size encourages taxpayer rescues if they run into trouble. After seizing the companies nine years ago, the government injected $187.5 billion into them.
To lower the barriers to entry, lawmakers and regulators have suggested letting private competitors use some of Fannie and Freddie’s infrastructure, such as the intellectual property the companies use to securitize mortgages or the data they rely on to determine whether one loan is riskier than another.
Corker and Warner started their work earlier this year, with their aides holding meetings with industry groups and former government officials to discuss ideas. The lawmakers are members of the Senate Banking Committee, which held a hearing on housing finance last month and has scheduled another for June 29. Banking Committee Chairman Mike Crapo and Sherrod Brown, the panel’s top Democrat, would likely take the lead on any housing-finance legislation with Corker and Warner’s input.
Among the ideas Corker and Warner have considered is splitting Fannie and Freddie’s single-family businesses from their multifamily businesses, which finance apartment rentals, said people familiar with their work. The single-family businesses could then be split again into even smaller companies, said the people who spoke on the condition of anonymity because the senators’ discussions are private.