The United States rejected Fairholme Capital Management's recapitalization proposal of Fannie Mae and Freddie Mac, saying the only way to revamp the home loan market is through proper housing finance reform, according to Gene Sperling, a senior adviser to the president.
Last week, Bruce Berkowitz's Fairholme said it wants to buy the mortgage-backed securities insurance businesses of Fannie and Freddie by bringing in $52 billion in new capital, in a bid to resolve the uncertain future of the mortgage financiers by freeing them from U.S. government control.
The recapitalization plan sought to raise about $34.6 billion in exchange for preferred stock, and at least $17.3 billion from preferred stockholders in a rights offering.
Any effort to recapitalize Fannie Mae and Freddie Mac, which were seized by the U.S. government during the 2008 housing crisis, would require congressional approval. The White House and Congress have shown no interest so far in plans proposed by private investors.
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In response, Gene Sperling, Director of the National Economic Council, said in a speech on Wednesday that the administration simply cannot allow Fannie and Freddie to be recapitalized in its current corporate form.