The regulator of housing giants Fannie Mae and Freddie Mac on Tuesday outlined a new strategic plan for the two government-controlled firms, stepping into a void left by congressional inaction.
The Federal Housing Finance Agency said the main goal would be to steer the mortgage finance market in a direction that leaves it dominated by the private sector instead of the government.
The 21-page plan, which has taken FHFA a little more than a year to pull together, is meant as a temporary substitute until Congress and the administration put in place a lasting framework for housing finance. Fannie Mae and Freddie Mac were placed in government conservatorship in 2008 as mounting mortgages losses threatened their solvency.
"Conservatorship is not meant to go on forever," FHFA Acting Director Edward DeMarco told Reuters. "By putting this out, this will certainly foster some public discussion, including discussion by members of Congress."
Fannie Mae and Freddie Mac have dominated the housing finance system since lending tightened during the financial crisis and recession. Since the government seized the two firms, they have bought or guaranteed about 3 out of every 4 U.S. mortgages in the country, according to FHFA, while being propped up by about $169 billion in taxpayer funds.
"We are gradually shrinking the footprint that Fannie and Freddie will have in the mortgage market," DeMarco said. "Lawmakers are still going to have to come to some consensus about the role of the government and government guarantees."
FHFA's strategic plan would build a single mortgage securitization platform to replace the current systems the government-sponsored enterprises use to support the credit business. DeMarco said this new structure would "take some time to implement."
The result would be a single mortgage-backed security issued by the GSEs, replacing the method Fannie and Freddie use to pool loans into packages and sell them to investors.
Currently, the GSEs buy loans from lenders and bundle them as securities for investors, which they then guarantee.
FHFA's plan would place increased risk on the private market, taking steps that include increasing the fees the entities charge lenders as a way to wean them off the government's backstop. This might also result in an expansion of the use of mortgage insurance, and changing loss-sharing arrangements that require private investors to bear all or some of the credit risk.
Under the new strategic outline, the FHFA said it will continue to pave the way for successful anti-foreclosure efforts, including a planned program to convert foreclosed government-owned properties into rental units.
The FHFA has taken an active role in overseeing government programs to help troubled homeowners and also has worked on the administration's effort to allow more borrowers to refinance, but it has resisted any steps that would be too expensive for Fannie and Freddie, saddling taxpayers with further losses.
"I don't think we're getting enough credit for the effort that we have tried to bring to these loan modification programs and to the success we have been having with them," DeMarco said.