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Are Big Changes on the Horizon for the Enterprises?

Two Senators are drafting legislation that could potentially break up Fannie Mae and Freddie Mac, Bloomberg reported on Tuesday.

In a bipartisan effort between Senator Bob Corker (R-TN) and Senator Mark Warner (D-VI) that started earlier this year, the two officials are looking to put an end to the Enterprise’s overwhelming command of the secondary mortgage market and create more competition. There have been murmurs in Washington ever since the U.S. government acquired the Enterprises back in 2008 after the housing market crash.   

How do they plan on increasing competitiveness in the marketplace? One idea is to separate Freddie and Fannie’s single-family business from their multifamily business. If need be, their single family businesses could be broken up even further.

However, this feat might be easier said than done. According to the Bloomberg article:

“Breaking up Fannie and Freddie would face logistical hurdles. In the past, business separations in other industries have sometimes fallen along regional lines, but that might not work for mortgage companies whose viability depends on a broad geographic footprint. Other issues a bill might have to address include how to split up employees, intellectual property and what would happen to the guarantees the companies issue on mortgage-backed securities during any transition.”

There is the chance that the legislation could fail to get traction amongst the Senate, with their current focus being on target picture legislation, such as healthcare reform and tax reform, both of which have gotten off to rocky starts. 

Treasury Secretary Steven Mnuchin has repeatedly said earlier in the year that he plans to focus on Freddie Mac and Fannie Mae’s future in the second half of 2017. Corker and Warner’s joint legislation could be the first step in that discussion. The two men are scheduled to meet with the rest of the Senate Banking Committee on Thursday, June 29.

Senator Corker and Senator Warner’s office did not respond to DS News’ request for comment.

You can read the full Bloomberg article here.

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