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The federal government is trying to get taxpayers off the hook for billions of dollars of potential losses if another mortgage crisis arrives — and in the process, it is quietly giving birth to a new asset class, the Wall Street Journal reported today. Under government control, mortgage-finance giants Fannie Mae and Freddie Mac next year plan to ramp up sales of new types of securities that in effect transfer potential losses in a housing downturn to private investors. Called Connecticut Avenue Securities by Fannie Mae and Structured Agency Credit Risk by Freddie Mac, the securities are essentially bonds whose performance is tied to that of a pool of mortgages. If the mortgages default, investors in the bonds could lose some or all of their principal. Proponents of the risk-transfer deals see them becoming a mainstay of the bond and housing markets over time, perhaps even entering major bond indexes tracked by mutual funds and exchange-traded funds.

U.S. banking regulators are ready to force changes to lending practices and establish tougher capital demands for firms that have dangerously lowered their standards in commercial real estate, Bloomberg News reported on Friday. After observing problems in rapidly growing loan portfolios, the regulators warned the industry on Friday that those with insufficient safeguards may be told to come up with plans for cleaning up their practices or to raise additional capital to mitigate the risk. Next year, supervisors from the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. will be paying “special attention” to these risks, they said. Banks that have seen substantial growth in their commercial real estate lending or whose expansion strategies call for it will get the most scrutiny. The regulators’ concerns stem from banks lowering their standards as competition has heated up to originate the loans.

The House of Representatives approved legislation yesterday including provisions that would remove the tax advantages of spinning off corporate real estate into a separate, publicly traded real estate investment trust, the New York Times reported today. The end of such tax-free spinoffs will generate $1.9 billion in additional tax revenue in the coming years, the Joint Committee on Taxation has estimated. These spinoffs have been a popular tactic of activist investors who have pushed companies to unlock cash by separating themselves from their real estate holdings. Publicly traded REITs own property or mortgages and are not taxed so long as they pass most of their income on to shareholders. Companies that own a lot of real estate — mall operators, restaurant chains and even casinos — have looked at a spinoff to a real estate investment trust as a way of getting a higher value for those properties and using the cash to pay off debt. There have been 15 tax-free REIT spinoffs since 2010, including five last year and three this year, for a total of $21.6 billion, according to FactSet.

Some casino and hotel companies including Caesars Entertainment Corp. and Hilton Worldwide Holdings Inc. are expected to get a reprieve from a proposal to curb real estate investment trusts (REITs), Reuters reported yesterday. An earlier version of the $650 billion tax break bill detailed yesterday included provisions that would have potentially derailed major company deals that involve REITs, which have gained popularity among investors thanks to more favorable tax treatment. In the latest version, companies are exempt if by Dec. 7 they had requested that the Internal Revenue Service interpret and apply tax laws to their transactions, according to Senate Democratic leader Harry Reid's office, which backed the changes. The changes protect the operating unit of Caesars, which has filed for bankruptcy. The company's restructuring plans, which have support of most senior lenders and bondholders, call for splitting it up into an operating company and a REIT. Hilton also plans to spin off its hotel properties into a REIT.

In the longstanding debate about what should be done to overhaul Fannie Mae and Freddie Mac, the mortgage behemoths that taxpayers rescued at the height of the financial crisis, a growing number of groups, including several hedge funds and other investors, as well as civil rights groups and consumer advocates, are offering a surprising answer: Go back to the very system we just bailed out, according to a commentary in today’s New York Times. In September 2008, after the two institutions had racked up tens of billions in losses that had wiped out their capital, and amid fears about what their insolvency might mean for the American housing market and the wider economy, the then newly created Federal Housing Finance Agency stepped in to place Fannie and Freddie in conservatorship. Taxpayers have backstopped the two institutions and their mortgage securities ever since. Yet, hard as it is to imagine, given the colossal scale of this bailout and the dramatic effect that their failure had on the broader economy, many are arguing that we should now resurrect Fannie and Freddie as the privately owned but taxpayer-backed oligopoly whose collapse contributed mightily to the financial turmoil and resulting Great Recession.

Seaboard Realty, a company that owns and manages a number of commercial and residential properties in Stamford, Conn., filed for bankruptcy protection yesterday and its president stepped down after two partners in the company questioned his bookkeeping, the Stamford Advocate reported today. Unspecified “recent events” prompted two owners to question the company’s finances under now-former president John DiMenna’s leadership, and the two hired a law firm and forensic accountant, according to a statement from the company. DiMenna resigned from his managerial duties with Seaboard Realty and also from its affiliates.

Many homeowners don’t realize they have home equity to tap, while banks have pulled back on loan amounts and other types of loans have become cheaper, the Wall Street Journal reported today. Home equity has roughly doubled to $12.1 trillion since house prices hit bottom in 2011, according to the Federal Reserve. As a result, a key gauge of housing wealth — homeowners’ equity as a share of real estate values — is nearing the point seen a decade ago, before the downturn. In the first half of the year, owners borrowed $43.5 billion against their homes with home-equity loans and lines of credit, according to trade publication Inside Mortgage Finance. That was 45 percent higher than in the first half of 2014, but scarcely a quarter of the amount seen when equity was last as high in 2007. Meanwhile, cash-out refinances, which let homeowners take out a new mortgage and tap some of the home’s value at the same time, were up 48 percent in the three months ended in August from the year-earlier period, according to Black Knight Financial Services. But they remain below the level seen in the summer of 2013.

Four years into the housing market recovery, New Jersey-based builder Hovnanian Enterprises Inc. is taking another turn for the worse, the Wall Street Journal reported today. The eighth-largest U.S. home builder faces $467 million in debt coming due through 2017 — and has no easy answers for how to repay it. Hovnanian’s share price has declined by 44 percent in the past year, the second steepest drop among 22 publicly traded U.S. home builders behind only that of small California builder UCP Inc. Hovnanian’s market value, which peaked at $4.5 billion in 2005, now languishes at $317 million. Hovnanian’s plight shows the long shadow cast by the housing crisis, which cut the ranks of U.S. home builders in half between 2007 and 2012 and left the survivors chastened. Many of the largest builders used their heft to rebound. A number of small and midsize builders failed, got gobbled up by larger acquirers or, like William Lyon Homes and WCI Communities Inc., shed their debt in bankruptcy court.

Housing advocates have attracted a prominent ally in their push to change the federal government’s policy of selling distressed mortgages at a discount to private equity firms and hedge funds, the New York Times reported today. Sen. Elizabeth Warren (D-Mass.) joined other lawmakers, advocates and community activists yesterday in a Washington, D.C. rally to oppose the loan sale program. The senator called on the Department of Housing and Urban Development and the Federal Housing Finance Agency, the overseer of Freddie Mac and Fannie Mae, to make it easier for nonprofit organizations to bid for the bundles of distressed mortgages put up for auction. The sale of distressed mortgages by HUD and the government-sponsored mortgage finance firms has been drawing growing criticism from housing advocates and lawyers in recent months. The critics are concerned that private buyers of distressed mortgages are moving too quickly to put borrowers into foreclosure instead of modifying the loan terms as housing officials had hoped.