Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) have remained silent at a time when institutional investors are pouring billions of dollars to buy foreclosed homes and convert them into rentals.

Fannie Mae

The government-sponsored entities once rapidly bought up foreclosed homes when banks were reluctant. Fannie Mae and Freddie Mac had planned to sell them off in large chunks to investors who could turn them into rentals. But after three large sales, both the housing giants have gone quiet, says Shanthi Bharatwaj of Nuwire Investor.

FHFA Changed Its Plans?

Federal National Mortgage Association (OTCBB:FNMA) and Federal Home Loan Mortgage Corp (OTCBB:FMCC) have more than 150,000 foreclosed homes that can be picked by institutional investors looking for a bulk deal. But the bailed out housing giants are reluctant to capitalize on the opportunity to dispose these assets. And the reason is still unclear.

Under a pilot program, Fannie Mae had sold 1,700 foreclosed homes in three bulk transactions in a pilot program. After the deal, the Federal Housing Finance Agency said in late 2012 that it was encouraged by the results. FHFA even said that it was committed to pursue the initiative. But it has remained silent since then.

Investors who purchased foreclosed homes in the pilot program are profiting from the deal. It’s time FHFA should provide updates on the development of the program.

Fannie Mae, Freddie Mac Liquidation

Meanwhile, Senator Bob Corker, R-Tenn is proposing reforms to wind down Fannie Mae and Freddie Mac as a part of the GSE reforms. Liquidation of the state-owned mortgage giants will end their dominance and make their shares worthless. Tim Rood, partner at The Collingwood Group and a former Fannie Mae executive said that the Treasury Department Bipartisan Policy Commission (BPC) and Federal Housing Finance Agency (FHFA) have been talking about winding down the two mortgage giants since 2011.

“Good thing is that we’re finally seeing earnest, bipartisan action toward legislative reform of the secondary mortgage market,” notes Tim Rood. “The GSE’s went into conservatorship nearly 5 years ago. Recall,  that move at that point was a Treasury-imposed ‘time out,’ not a permanent solution.”

The Bipartisan Policy Commission has planned to replace Fannie Mae and Freddie Mac with a reinsurance entity called the Federal Mortgage Insurance Corp. Tim agrees that the transition may happen. “We’re still far from seeing this bill’s final version however,” he adds. Though the idea of a catastrophic insurance/reinsurance isn’t new, and it’s a popular one.