Fannie Mae, Freddie Mac to merge some functions in new company

WASHINGTON — The federal regulator for Fannie Mae and Freddie Mac took the first major step toward possibly shutting down the taxpayer-rescued firms by deciding to merge some functions of the mortgage financing giants into a new company.

The Federal Housing Finance Agency plans to create a “new business entity” that would package home loans owned or guaranteed by the companies into mortgage-backed securities, Edward J. DeMarco, the agency’s acting director, said Monday.

The goal is to create a vehicle that could replace the nation’s biggest mortgage backers should Congress decide to do that as part of a still-pending overhaul of the housing finance market, DeMarco said.

“We are designing this to be flexible so that the long-term ownership structure can be adjusted to meet the goals and direction that policymakers may set forth for housing finance reform,” he said in a speech at the annual conference of the National Assn. for Business Economics in Washington.

Fannie and Freddie, which have competed against each other for years, were seized by the government in 2008 as they teetered on the edge of bankruptcy after bad investments in the subprime housing market.

The former government-sponsored enterprises, now 80% owned by taxpayers, have received about $187 billion in bailout money as of December, the latest available figures.

They have paid about $55 billion back to the U.S. Treasury in dividends, and their bailout price tag has been shrinking as their finances improved with the housing market recovery.

Still, the Obama administration and Congress want to shut down Fannie and Freddie and reduce the government’s role in the mortgage market. Fannie and Freddie, along with the Federal Housing Administration, now back about 90% of new mortgages.

Efforts to replace Fannie and Freddie have moved slowly because some policymakers are concerned about acting while the housing market still is recovering.

The new, as-yet-unnamed company would be owned and funded by Fannie and Freddie but would be independent and have its own chief executive and board chairman.

In addition to handling mortgage securitization, the company would take over other duplicate functions at Fannie and Freddie, including providing disclosures for the securities and paying investors, DeMarco said.

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