The Federal Housing Finance Agency, which oversees housing giants, Fannie Mae and Freddie Mac, outlined a new strategic plan for the 2 government-controlled firms, filling a void left by congressional inaction.  The FHFA is seeking to steer the mortgage finance market toward domination by the private sector, and away from its current domination by the government.

"We are gradually shrinking the footprint that Fannie and Freddie will have in the mortgage market.  Lawmakers are still going to have to come to some consensus about the role of the government and government guarantees." -- Edward DeMarco, FHFA Acting Director.

The FHFA has outlined its proposed changes in a 21-page plan that took over a year to prepare.  The plan is intended to be a temporary remedy for the housing market - i.e., until Congress and the administration put in place a lasting framework for housing finance.  [Good luck!] Conservatorship. Back in 2008, Fannie Mae and Freddie Mac were placed in government conservatorship as mounting mortgages losses threatened their solvency.  In spite of their fragile financial position, Fannie and Freddie have dominated the housing finance system since lending tightened during the financial crisis and recession.  Since the government seized the 2 firms, they have bought or guaranteed nearly 3 out of every 4 U.S. mortgages in the country.  Of course, it's taken about $169 billion in taxpayer funds to accomplish this feat.

"Conservatorship is not meant to go on forever," according to FHFA Acting Director Edward DeMarco, who added, "By putting this out, this will certainly foster some public discussion, including discussion by members of Congress."

FHFA anticipates building a single mortgage securitization platform to replace the current systems the government-sponsored enterprises use to support the credit business.  This would take some time to implement, according to DeMarco.  Once completed, there would be a single mortgage-backed security (MBS) 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. Increasing Private Market Risk. 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 its strategic plan, the FHFA said it will continue to pave the way for successful anti-foreclosure efforts, that would include a planned program to convert foreclosed government-owned properties into rental units.  The FHFA has been actively overseeing government programs to help troubled homeowners, and has worked on the administration's effort to allow more borrowers to refinance.  At the same time, it has resisted any steps that would be too expensive for Fannie and Freddie, and thus saddle taxpayers with further losses. For further details, go to:   [Reuters, 2/21/12]