Housing regulator seeks input on mortgage financing plan

WASHINGTON Thu Oct 4, 2012 6:36pm EDT

A general view of Fannie Mae headquarters in Washington March 30, 2012. REUTERS/Jonathan Ernst

A general view of Fannie Mae headquarters in Washington March 30, 2012.

Credit: Reuters/Jonathan Ernst

WASHINGTON (Reuters) - The regulator for Fannie Mae and Freddie Mac on Thursday sought input from the housing industry and investors on a strategy to overhaul the mortgage finance market, testing a plan that would involve cutting government support.

The Federal Housing Finance Agency released a white paper on a previously proposed framework that would change the mortgage securitization business, which is the bundling and selling of loans as debt instruments. Fannie Mae and Freddie Mac, which are supported by taxpayers, provide liquidity by buying mortgages and packaging them into securities they sell to investors.

Developing a new securitization platform is a goal of FHFA acting Director Edward DeMarco as he steps into a void left by Congress and the Obama administration, who have yet to come to terms with how to withdraw the government's extraordinary support for the housing sector.

The government has kept the current securitization machinery running by providing Fannie Mae and Freddie Mac, which teetered on the brink of insolvency at the height of the financial crisis, with more than $140 billion in taxpayer aid.

Under the FHFA strategy, the regulator would create a new securitization infrastructure, and change some of Fannie Mae and Freddie Mac's operations. The two companies are currently responsible for about 75 percent of mortgage securitization.

DeMarco, in a news release, said the white paper "is an important step laying the groundwork for the future structure of the housing finance system," and that the securitization model laid out could potentially "outlast Fannie Mae and Freddie Mac as we know them."

The FHFA asked seven questions in the proposed white paper, mainly seeking to find out how to attract private capital to the housing finance system. The regulator said they will make the comments public after December 3.

(Reporting by Margaret Chadbourn)

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