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Are Fannie Mae and Freddie Mac Headed for Splitsville?

New York City

Freddie Fannie Split
July 3, 2017

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, Bloomberg reports.

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.

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 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. After seizing the companies nine years ago, the government injected $187.5 billion into them.

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. 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 co-op mortgages. The single-family businesses could then be split again into even smaller companies. Both Corker and Warner have said they want to preserve the 30-year mortgage. Treasury Secretary Steven Mnuchin has said that Fannie and Freddie will be a focus during the second half of the year.

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