U.S. HOUSING DEPT. BACKS PRIVATIZING FNMA <FNM>
The U.S. Department of Housing and
Urban Development (HUD) said it backed an eventual severing of
the link between the government and the Federal National
Mortgage Association -- better known as Fannie Mae.
    But the department, in a long-awaited report requested by
Congress in 1984, shied from setting a timetable for the giant
housing finance institution to end its government ties.
   Instead, it said specific recommendations would come in a
second report, to be issued jointly by Fannie Mae and HUD by
Oct. 1.
   "The basic policy directive underlying FNMA's history has
been consistent -- a gradual movement toward fully private
status. There appears to be no need to change that policy," the
HUD report said.
    Any change in Fannie Mae's status would be up to Congress.
    The HUD report said the options open to Congress ranged
from doing nothing to full and immediate privatization.
    "Whatever option is selected, the combination of the
favorable economic environment, FNMA's recent move to financial
health, the current strength of the housing market and the
evolution of FNMA's role in the mortgage market from
contributor to competitor would all indicate that the time is
ripe for a positive move toward privatization," the report
concluded.
    Fannie Mae operated as a part of the federal government
from the time it was created in 1938 until 1968, when it was
rechartered by Congress and put under private ownership with
government backing.
    However, "it was always intended that FNMA would eventually
become fully private," the HUD report said.
    Fannie Mae's critics, including some Reagan administration
officials espousing a free-market philosophy, say government
sponsorship of the agency allows it to compete unfairly with
private lenders and investors.
    But its backers claim mortgage rates would be pushed up as
higher agency costs were eventually passed on to home buyers.
    Fannie Mae was created by Congress to make capital
available for housing by buying mortgages from lenders and
packaging them as securities to sell investors.
 Reuter
