Factbox: Housing companies could face reform in 2011

WASHINGTON (BestGrowthStock) – The Obama administration is preparing a plan to overhaul U.S. housing policy and mortgage finance giants Fannie Mae and Freddie Mac. Following is a description of existing U.S. housing companies’ roles and operations:


Fannie Mae is a chartered government-sponsored enterprise (GSE) that operates in the secondary mortgage market.

Fannie provides liquidity to lenders by purchasing loans and bundling them into mortgage-backed securities (MBS) for sale in the secondary market. It issues securities both domestically and internationally, gathering funds to buy mortgage-related assets for its portfolio, which is also built up through purchase of mortgage loans and MBS.

The U.S. government took over Fannie Mae on September 8, 2008, placing the company in conservatorship. It is regulated by the Federal Housing Finance Agency and has received an unlimited federal credit line.

The U.S. government has spent more than $75 billion on Fannie as of May 2010. In May, Fannie asked for another $8.4 billion and then an additional $1.5 billion in taxpayer aid in August after posting a net loss of $3.1 billion for the second quarter 2010.

Including the last request, the federal government will have directly fed $86 billion to Fannie Mae.

Fannie’s market share has slid to roughly 2 percent in the second quarter in 2010 from 68 percent a year earlier.


Freddie Mac also is a chartered government-sponsored enterprise (GSE) that operates in the secondary mortgage market. It too is a ward of the state.

Like Fannie, Freddie securitizes residential mortgages for sale in the secondary market and purchases single-family and multifamily MBS for its mortgage-related investments portfolio.

Also like Fannie, Freddie was placed in conservatorship in September 2008 by the FHFA.

A week before Geithner convened a conference to plan the overhaul of the housing finance system, Freddie requested $1.8 billion in federal aid, bringing its total request since the takeover to more than $64 billion.

In August, Freddie reported the best three-month performance in a year, posting a loss of $6 billion. It reported its year-to-date GSE market share in 2010 at 42 percent after a plunge to 37 percent in 2009.


FHLB is a cooperative of 12 regional banks that provide funding for community housing to lenders. Created by Congress, the system has been the largest source of community mortgage lending and community credit funds.

The 12 banks are privately owned and regionally controlled; members include thrifts, commercial banks, credit unions, community development financial institutions and state housing finance agencies.

FHLB stock is held at par value by more than 8,000 regulated financial institutions and is not publicly traded. Equity purchase is necessary to join the system and ensures self-capitalization of the entity. FHLB isn’t supported by taxpayer money but enjoys special tax breaks.


Ginnie Mae, or the Government National Mortgage Association, is a government-owned corporation that issues securities explicitly backed by the U.S. government. This explicit guarantee distinguishes Ginnie from Fannie and Freddie. Ginnie also does not hold any of its own bonds.

Ginnie Mae guarantees investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans, mainly loans insured by the Federal Housing Administration or guaranteed by the Veterans Affairs Department.

Ginnie Mae accounts for roughly 10 percent of the MBS market, ensuring timely payments on those securities, but it doesn’t purchase, sell or issue securities itself.


The FHA is a federal regulator that is part of the Housing and Urban Development Department. It oversees Fannie, Freddie, FHLB and other mortgage lenders and provides mortgage insurance on loans made by the FHA-approved lenders for lower-income and first-time buyers.

The agency now insures about 5.4 million single-family home mortgages at a combined value of $675 billion, making it the world’s largest insurer of mortgages.

Together with Fannie and Freddie, the FHA backs 90 percent of new U.S. home mortgages. FHA picked up much of the slack as conventional loan lenders and private insurers were squeezed by the credit crunch in 2008.

FHA runs on self-generated income without dipping into taxpayer money. However, federal agency Ginnie Mae guarantees the loans insured by the FHA, meaning taxpayers may be under the gun if FHA-backed mortgages get in trouble and the federal government has to pay out investors who own Ginnie Mae stock.

(Compiled by Alina Selyukh, Editing by Chizu Nomiyama)

Factbox: Housing companies could face reform in 2011