Fairholme Capital Management ("Fairholme") today announced that it has submitted a proposal to relevant federal government officials for the purchase by private investors of the mortgage-backed securities insurance businesses of the Federal National Mortgage Association ("Fannie") and the Federal Home Loan Mortgage Corporation ("Freddie").
The proposal answers the bipartisan call for significantly more private capital in the mortgage market, and is intended to facilitate legislative reform of any political stripe. In particular, the proposal:
Brings approximately $52 billion of private capital to support credit risk on more than $1 trillion of new mortgages without market disruption;
Demonstrates reform is possible, even without a Federal guarantee, by having investors commit to bear risk now;
Allows for the liquidation of Fannie and Freddie, ending their Federal charters and special status, without losing the value of operating assets critical to the mortgage market;
Reduces systemic risk by separating new underwriting from the legacy investment books of Fannie and Freddie;
Preserves Government options for affordable housing initiatives and counter-cyclical liquidity – but using tools other than Fannie and Freddie; and
Ends the unsustainable Federal conservatorship.
Read the complete proposal.