By Mike Colpitts
Mortgage giants Fannie Mae and Freddie Mac are expected to start unloading hundreds of thousands of distressed mortgages following a Treasury Department announcement ordering the reduction of troubled mortgages.
Despite a political bottleneck in Congress over how to handle the two lenders, the action “will help expedite the wind down of Fannie Mae and Freddie Mac,” according to a statement released by the Federal Housing Finance Agency.
“We are taking the next step toward responsibly winding down Fannie Mae and Freddie Mac, while continuing to support the necessary process of repair and recovery in the housing market,” said Michael Stegman, an attorney for the Secretary of the Treasury for Housing Finance Policy.
“As we continue to work toward bi-partisan housing finance reform, we are committed to putting in place measures right now that support continued access to mortgage credit for American families, promote a responsible transition, and protect taxpayer interests.”
The two government backed lenders will be required to cut their mortgage portfolios 15% each year until reaching $250-billion in mortgage securities. Freddie Mac currently has $581-billion in mortgages and Fannie has $672-billion, with both government sponsored enterprises gaining more failed home loans each day.
Both giant lenders, which purchase about 80% of all current U.S. mortgages that are sold by banks and other mortgage lenders, were taken over by the federal government at the height of the financial crisis. The Federal Housing Finance Agency was formed by the Obama administration to oversee day to day operations, and have been bailed out by the U.S. tax payer.
Agreements worked out by the federal government took over the majority of preferred stock invested in Fannie Mae and Freddie Mac. New agreements replace the 10% dividend payments made to Treasury for investing in the two firms.
The government also says that the action will make “sure that every dollar of earnings that Fannie Mae and Freddie Mac generate will be used to benefit tax payers for their investment in those firms.”