Industry Seeks Fannie, Freddie Overhaul

09-02-2009 • WSJ

A mortgage-industry trade group is calling for Congress to transform Fannie Mae and Freddie Mac into several smaller privately held companies that would issue mortgage securities carrying an explicit government guarantee. The proposed framework, to be released Wednesday by the Mortgage Bankers Association, would give successor entities to Fannie and Freddie the authority to create securities backed by certain types of mortgages. The new companies would guarantee the securities against defaults on the underlying mortgages. Some foreign investors in China and elsewhere lost confidence in that fuzzy implied guarantee last year and reduced their holdings of the companies' debt, though the U.S. government has propped up Fannie and Freddie with capital infusions. "If we're going to restore and maintain investor confidence and...consistent liquidity, that is going to require an explicit backstop," said John Courson, chief executive and president of the MBA. Shares