Fannie Mae Wind-Down Deemed Threat to Home Recovery: Mortgages

by. Heather Perlberg and Prash Gopal

A U.S. Senate plan to dismantle Fannie Mae and Freddie Mac (FMCC) may deliver an unintended blow to a fragile housing recovery.

A draft of the measure, which Senate Banking Committee leaders released yesterday, would replace the two financiers with a government-backed mortgage-bond insurer. Private interests would be required to bear losses on the first 10 percent of capital, leading to higher mortgage rates, according to Credit Suisse AG analysts. The plan also would eliminate a mandate that a percentage of mortgages go to lower- and middle-income families, threatening to decrease America’s homeownership rate.

Senator Tim Johnson, a Democrat from South Dakota, and Senator Mike Crapo, an Idaho Republican, are trying to pass the measure this year. Outside the Senate chambers, the housing market is showing signs of cooling as tighter lending and higher prices shut out increasing numbers of first-time buyers.

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