By Nikki De Guzman:
In a bid to reduce the US government’s involvement in the loan market, mortgage giants Freddie Mac and Fannie Mae will create a new company to securitise home loans, said the Federal Housing Finance Agency (FHFA).
“The overarching goal is to create something of value that could either be sold or used by policymakers as a foundational element of the mortgage market of the future,” said Edward DeMarco, FHFA Acting Director and chief regulator of the two firms.
In 2008, both Freddie and Fannie were bailed out by the authorities and helped finance about two-thirds of all new mortgages in the country.
Since then, the US Treasury has provided them with nearly US$190 billion in taxpayer’s money.
DeMarco plans to reduce their presence in the market and cut the risks to taxpayers supporting them.
By forming a new securitisation firm, FHFA paves the way for a single securitisation platform, forcing the companies to abandon their separate systems.
"The goal is to create a single infrastructure to support the mortgage credit business," said DeMarco, adding that the new company will be structured as a joint venture and is not expected to securitise loans next year, but will focus on hiring staff and creating the business.
Freddie and Fannie do not directly make loans but provide financing to lenders by buying mortgages, which they keep on their books or package as securities that are sold to investors with a guarantee.
Nikki De Guzman, Junior Reporter at PropertyGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
Related Stories:
Aussie banks face pressure to cut rates
MAS structures in place to prevent over-borrowing
OCBC expects 30% drop in mortgage lending