Industry group details how
to replace Fannie, Freddie

Associated Press

A mortgage industry group wants Fannie Mae and Freddie Mac to be replaced with private companies that would be able to issue mortgage bonds formally backed by the federal government.

Enlarge photo

Andrew Councill/The New York Times Group wants Fannie Mae and Freddie Mac to be replaced with private companies.

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The Mortgage Bankers Association’s proposal Wednesday offered a detailed plan for how to restructure the mortgage market.

The Obama administration doesn’t expect to announce its plans for the two companies until early next year. It has listed several options, including merging them into a federal agency, shutting them down, or have their bad assets split into a new government-backed company.

Fannie Mae and Freddie Mac own or guarantee about $5.4 trillion in mortgage debt and have needed about $96 billion in federal aid since they were seized by federal regulators last fall. The companies’ debt is not officially backed by the federal government but has been effectively guaranteed since the takeover.

The mortgage bankers’ plan would replace Fannie and Freddie with several federally regulated private companies known as Mortgage Credit Guarantor Entities, nicknamed “McGees.” They would buy loans and sell them as bonds with their own guarantee attached and would pay the government a fee for its backing.

For investor confidence to return to the market for mortgage-backed securities, “there has to be an explicit government backstop,” said John Courson, the trade group’s president.