Report: Wind down Fannie and Freddie, but provide government backstop for mortgage securitization

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Fannie Mae and Freddie Mac should be wound down and their securitization activities spun out into a new platform overseen by a new, FDIC-like federal agency, according to a bipartisan report by Moody’s Analytics Chief Economist Mark Zandi and former government officials.

The report envisions that mortgage-backed securities (MBS) would be insured by private firms that would not have the backing of the federal government, but which would be subject to federal regulation — much as insured banks and other depository institutions are today. MBS insurers would purchase catastrophic secondary insurance from the government, paying a guarantee fee. The government would ensure that MBS investors were paid if insurers became insolvent, but the MBS insurers themselves would be allowed to fail. Source: economy.com.

 

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