* Bipartisan group wants to shutter Fannie Mae, Freddie Mac
* Government-run firms are largest mortgage finance sources
* Some investors speculate firms could be re-privatized
By Margaret Chadbourn
WASHINGTON, May 29 A bipartisan group of U.S.
senators hopes to introduce a bill in the coming weeks to
overhaul the housing finance system and wind down government-run
Fannie Mae and Freddie Mac, people familiar
with the matter said.
The plan being crafted by Senators Bob Corker, a Tennessee
Republican, and Mark Warner, a Virginia Democrat, would seek to
build a single entity to guarantee mortgages, according to these
Fannie Mae and Freddie Mac, which were taken over by the
government in 2008 as they teetered on the brink of insolvency,
own or guarantee about half of all U.S. mortgages. Given the
dominant role they play in the mortgage market, it could take
years for Congress to settle on how best to replace them.
A Corker-Warner bill could mark the beginning of that
effort, if the senators are able to piece together a large
enough political coalition. While Democrats and Republicans
agree on the need to shrink the government's housing finance
role, they are divided over where a new line should be drawn.
"What Senators Corker and Warner are doing is laudable. They
are wading into a highly partisan fight and trying to put
forward an initial approach," said Jaret Seiberg, a senior
policy analyst at Guggenheim Securities. "They are looking at a
problem and coming up with a practical solution. It is not going
to be the solution that is finally enacted into law, but it will
be the solution that gets the reform process moving."
Fannie Mae and Freddie Mac charge lenders a fee in return
for guaranteeing principal and interest on mortgages, a system
designed to boost lending by banks and home ownership.
Since being placed into government conservatorship, they
have draw almost $190 billion in taxpayer aid. But both of the
so-called government-sponsored enterprises, or GSEs, have
returned to profitability, and the swing in their financial
fortunes has intensified the debate over how much of the risk of
mortgage lending taxpayers should ultimately bear.
"There seems to be an increasing desire in Congress to do
something bipartisan and to take action on the GSEs," said David
Stevens, president and chief executive officer of the Mortgage
Bankers Association. "If it is bipartisan, that would make it
unique. Clearly, the broader the coalition, the better chance a
reform bill will be heard and considered."
EXPLICIT GOVERNMENT GUARANTEE
The Senate group, which is being led by Corker, is expected
to propose a newly chartered institution that guarantees
principal and interest payments on mortgage-backed securities.
Lawmakers would likely create an explicit federal guarantee or
employ a government insurance structure.
Corker's office declined to offer details. "Discussing
specifics of legislation would be premature at this point, but
we hope to find something that materially improves from the past
system where gains were privatized, losses were left for the
taxpayer to clean up, and the system was way too thinly
capitalized against downturns," said Laura Herzog, Corker's
Fannie Mae and Freddie Mac are congressionally chartered.
While they operated without explicit government before they were
taken over in 2008, investors assumed the government would make
good on their guarantees if they ran into trouble.
"Corker and Warner are signaling the Senate is going to
tackle this issue. That is why their effort is significant and
material, even if the ultimate solution will not exactly mirror
their bill," Seiberg said.
Many conservative Republicans want the private sector to
absorb the roles Fannie Mae and Freddie Mac play, while a few
moderate Republicans and most Democrats argue a government
backstop is needed for the mortgage market.
When the government took over the companies, the U.S.
Treasury received an 80 percent stake in each. They have also
been delisted from the New York Stock Exchange and their stock
now trades over the counter.
The improvement in their financial fortunes has led some
investors to speculate that they could be re-established as
private firms, even though the terms of their bailout do not
allow them to buy out the government stake and future
congressional action could wipe out the existing equity.
Fund manager Bruce Berkowitz's Fairholme Capital Management
is among firms that have invested in the preferred stock of the
companies, according to CNBC. The cable network reported on
Thursday that Berkowitz had taken a roughly $500 million stake.
Berkowitz, who was named Morningstar's domestic-stock fund
manager of the decade in 2010 and is best known for betting on
financial stocks, was not available for comment on the report.
Fairholme is the latest among several investment firms and
hedge funds that have been accumulating either the common or
preferred stock of Fannie and Freddie. Some hedge funds have
also been lobbying Congress to let the companies return to
Until a roughly 30 percent pullback on Wednesday, the common
shares of Fannie Mae and Freddie Mac had risen for seven
Investors have also bid up several issues of their junior
preferred shares. Fannie Mae preferred Series S shares
have risen from a 2012 low of 46 cents on August 17
to $6.55 on Wednesday. Freddie Mac's preferred series Z shares
have risen from a 2012 low of 42 cents on August 17