Mortgage buyers Federal Home Loan Mortgage Corp (OTCMKTS:FMCC) and Federal National Mortgage Association (OTCMKTS:FNMA) will no longer be under government conservatorship. This report came out on Thursday when Trump’s administration disclosed its plan to bail these two out. These two business gurus have been under the government conservatorship for about 11 years. If you have been following matters closely, you can remember the financial crisis that was experienced in 2008. These were some of the affected companies.
The proposed plan has several important provisions. First and foremost, it will take into account some administrative and legislative proposals. These will be targeted at reducing the role of the government in the mortgage market.
Secondly, there is a pan to privatize both Fannie Mae and Freddie Mac. However, government involvement will be witnessed in case the companies have an emergency. The government could, for instance, offer them a line of credit in return for a periodic fee. The move will go along the way, ensuring taxpayers don’t lose out at all.
Thirdly, the proposal will focus on opening up the market, a matter that will favor the various private competitors.
Lastly, the current mortgages won’t at all be affected by the latest move.
A close outlook at the two businesses
Freddie Mac and Fannie Mae share one thing in common they don’t provide lending services to home buyers. On the contrary, these two businesses focus on the purchase of the various existing mortgages. For instance, they are open to working with lenders such as banks. The companies usually package or hold them into securities. Eventually, they get to sell them out to the interested investors. These two happen to be the ones backing almost half of all the mortgages in the U.S market.
In 2008, the government took up the direct control of Freddie Mac and Fannie Mae. Reports indicate that it wanted to ensure that the collapse of the companies doesn’t end up impacting the U.S. housing market adversely. It took to bailing out the two companies, an undertaking that cost about $190 billion. In return, the two businesses used the profits to pay back, which they did through the Treasury Department.