Fairholme Capital Management Offers to Buy Fannie, Freddie Businesses

WASHINGTON (AP) -- 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 totaling $187 billion.

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

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.

In a press release, Bruce R. Berkowitz, managing member and chief investment officer of Fairholme Capital Management, was quoted as saying, "We know that many people in and outside of government are working on the redesign of the mortgage market, and trying hard to get it right for America. This proposal answers the broad bipartisan call for private capital in a way that can advance reform from concept to a viable, sustainable solution. Fannie and Freddie’s business model was not consistent with insurance industry best practices. However, in this country we fix valuable businesses by restructuring; we do not simply throw them away. Fairholme is prepared to do its part to help effectuate this restructuring and to be long-term owners of the insurance businesses, without the need for any Federal assistance or special Federal status."

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