Wells Fargo exec: Fannie, Freddie role should go private
Michael Heid, Wells Fargo Home Mortgage co-president, will say in written testimony tomorrow before the House Committee on Financial Services that privately capitalized firms could guarantee securitized mortgages in the future, not the government-sponsored enterprises Fannie Mae and Freddie Mac. Heid is also the chairman of the Housing Policy Council of the Financial Services Roundtable, which represents 30 national mortgage finance companies. The HPC, he said, drew a proposal for the future of Fannie and Freddie that would involve creating at least four private mortgage securities insurance companies. Michael Farrell, CEO of Annaly Capital Management (NLY), will testify tomorrow as well agreeing that the government should leave the mortgage industry for private companies to fill the void and make securitization profitable again. These MSICs, according to Heid, would purchase mortgages from originators, package them into securities and guarantee the payment of interest and principal on them for a fee. According to Heid's proposal, the Federal government would charter, supervise, and ultimately back the MSICs either explicitly or implicitly. "The greater the number of MSICs, the better insulated the housing finance market would be from the failure of any one MSIC," Heid said. "On the other hand, too many MSICs -- with different underwriting systems and procedures -- could be overly burdensome to lenders, particularly smaller lenders." The Treasury Department has recorded losses of $148 billion attributable to the bailout of Fannie and Freddie so far. Edward DeMarco, the acting director of the Federal Housing Finance Agency, the conservator of the GSEs, said the bailout could eventually cost taxpayers $400 billion. While the Dodd-Frank Act passed in July did not address the future of Fannie and Freddie, it did set a deadline for a proposal to be drafted by the end of the year. "The challenge we face is designing a secondary market system that ensures a steady flow of reasonably priced mortgages to borrowers while limiting the exposure of taxpayers," Heid said. Write to Jon Prior.