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 Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).
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 Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), 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.