MBA Releases Plan to Replace Fannie Mae and Freddie Mac

The Mortgage Bankers Association on Wednesday morning released a working paper on rebuilding the secondary market — a plan that does not include the continued existence of Fannie Mae and Freddie Mac in their present form but instead relies on the creation of a small number of mini-GSEs that could be in co-operative form. Under the plan, the creation of mortgage-backed securities would rely on risk-based premiums paid into a federal insurance fund with loan level guarantees provided by what the trade group calls a "small number of privately-owned government-chartered and regulated mortgage credit-guarantor entities" or MCGEs. MBA wants ownership of at least one of the MCGEs to be in a co-op form with mortgage lenders as shareholders. "A co-op could be attractive to mortgage bankers," said MBA chief executive John Courson. (Ownership of Freddie Mac stock was limited to savings and loan associations under a co-op structure until 1989, when the company first sold shares on the New York Stock Exchange.) Even though Fannie and Freddie would no longer exist under this blueprint for the secondary market their "technology, human capital, standard documents and relationships" could serve as the foundation for the new MCGEs, MBA says. The plan — which played a role in driving down the GSEs' share price on Wednesday morning — was drafted by a special task force of MBA members including top executives in the industry who work for lenders, servicers, mortgage insurance firms, title companies and other players in the business. Fannie and Freddie declined to comment on the proposal. Some members of the task force work for companies that were once part of FM Watch, a lobbying group whose mission was to curtail the powers of Fannie and Freddie.