Proposal floated to merge Fannie Mae and Freddie Mac

A recently released paper proposes how to reform Fannie Mae and Freddie Mac: merge them.

After the financial crisis in 2008, both mortgage giants were placed under the conservatorship of the Federal Housing Finance Agency, their regulator.

The paper suggests that instead of winding down the two institutions, merge them into a government-owned corporation, which the authors called the National Mortgage Reinsurance Corporation.

The single corporation would continue to handle Fannie Mae and Freddie Mac’s current operations: buying mortgages and providing a federal guarantee on mortgage-backed securities, the Wall Street Journal reported.

Currently, both are government-chartered but privately owned.

In the paper, the new company would charge 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.

It is not likely legislative housing-finance reform would happen until after the election, but it may change how the debate is framed, according to the Journal.

Former Obama White House housing advisor Jim Parrott, Mark Zandi, chief economist of Moody’s Analytics, Gene Sperling, former director of National Economic Council, Barry Zigas, director of housing for Consumer Federation of America, and Lewis Ranieri of Ranieri Strategies authored the paper.

In December, both Fannie Mae and Freddie Mac stepped up the sale of new type of securities that would transfer potential losses in a housing downturn to private investors. [WSJ] — Dusica Sue Malesevic