A new Treasury blueprint on what to do with
Moreover, the idea is to have the new Treasury secretary—whoever that may be—put his imprint on the product.
Advisors and officials familiar with the issue noted that
Stegman heads Treasury’s “housing reform working group.”
The agency declined to comment on the matter for this article.
Meanwhile there is a growing belief that the next Congress—which is toiling with the fiscal cliff issue—is in no mood to tackle GSE reform anytime soon.
But one former Treasury official has come up with a plan to privatize
He hopes the
His plan calls for winding down their huge mortgage portfolios over a three- to four-year period and allowing the GSEs to retain their earnings and profits to rebuild capital.
Right now those dollars are going to Treasury. Under Congress’ arcane budget rules, those funds don’t count toward deficit reduction.
“In our estimation, the common stock could be sold for an amount that would be more than sufficient to pay back the federal government more than
Millstein’s idea is to build on a GSE reform option that Geithner is believed to favor.
That option calls for creating a new government agency that provides re-insurance for qualified mortgage-backed securities.
Once the GSEs are sold to the public, Millstein explained, they would become private mortgage insurers that could purchase re-insurance from this new agency. (So could other private insurers.)
But to make that happen,
FBR Capital Markets’ analyst
“The private-label market is broken,” he said. MBS investors “need a government guarantee to ensure they will get principal and interest back.”
Millstein noted, “Once the lawmakers begin focusing on the fact that a privatization transaction would count as deficit reduction, our guess is that interest in a privatization transaction will increase on the Hill.”
If his plan is adopted, the private insurers would take the first loss before the new government re-insurance agency takes a hit.
Fannie and Freddie would no longer be government-sponsored enterprises, he said.
They would be “truly private companies who are buying government re-insurance for a price,” Millstein said.
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