Fairholme Capital offers to buy guarantee businesses of Fannie, Freddie for $52B

WASHINGTON – An investment firm is offering to buy from the government core businesses of mortgage giants Fannie Mae and Freddie Mac in a $52 billion deal.

Fairholme Capital Management made the proposal Wednesday to the Federal Housing Finance Agency, which oversees Fannie and Freddie. The government rescued the two companies in the financial crisis in September 2008 with taxpayer aid totalling $187 billion.

Fannie and Freddie buy mortgages from lenders, package them as securities, guarantee them against default and sell them to investors.

Miami-based Fairholme says it would lead a group of investors to buy the guarantee businesses of the companies. The firm says that would be sufficient to back about $1 trillion in new mortgages.

The Obama administration is seeking to wind down Fannie and Freddie.

An agency spokeswoman declined comment on the proposal.

The goal of the Obama plan is to replace Fannie and Freddie with a system that would put the private sector, not the government, primarily at risk for the loans. That would spread the risk over numerous companies. The government would still be involved, both in oversight and as a last-resort loan guarantor. The White House also wants a guarantee that private lenders will make sure homeowners have access to 30-year fixed mortgages.

Fairholme said its proposal would end government control of Fannie and Freddie and government backing for new mortgages. It would create two private insurance companies to buy the mortgage securities guarantee businesses of Fannie and Freddie. The new companies would have no federal charter or special status, and the names Fannie and Freddie would be ended.

It is unclear whether the Fairholme proposal would fit with the administration’s plan. Government officials have said previously that a small group of investment firms taking on such a large risk of mortgage defaults would open the possibility of the government having to bail out the firms if they failed.

The gradual recovery of the housing market has made Fannie and Freddie profitable again. Their repayments of the government loans have helped make this year’s federal budget deficit the smallest in five years.

The two companies last week posted strong earnings for the July-September period, enabling them to finish repaying their taxpayer aid or come close to doing so.