NAR to Congress: Turn Fannie and Freddie into Non-Profits
A trade organization for real estate agents, the National Association of Realtors (NAR) is recommending to Congress that the government-sponsored enterprises (GSEs) Fannie Mae (FNM) and Freddie Mac (FRE) be converted into non-profit secondary market authorities. NAR proposed that the current private profit and public loss structure be removed while regulators and Congress consider restructuring plans for the GSEs. NAR added that Fannie and Freddie are “best positioned” to become government authorities, and they should provide a flow of capital into the secondary market regardless of the volatility of the mortgage markets. But they would not be federal agencies, according to the proposal. Instead, the authorities would function as “self-sustaining” organizations removed of Congressional funds and profit motives. However, NAR called for the government to guarantee the businesses of the authorities through the use of mortgage insurance on products with a loan-to-value (LTV) ratio of 80% or higher and mortgage-backed securities (MBS) fees. “NAR believes that any organization with a private profit and public loss structure, as the GSEs are presently structured, is inherently flawed,” according to the proposal. All excess revenue would be reinvested to accumulate capital in strong markets in order to spark rebounds in weaker markets. To lure private market participation, NAR also proposed a guarantee from the Federal Deposit Insurance Corp. An upcoming House Committee on Financial Services hearing on the future of the GSEs was rescheduled. The Committee chairman Barney Frank recently called for the abolition of Fannie and Freddie and designing a whole new system of housing finance. Write to Jon Prior.