A new bill to wind down Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and replace with a new government agency is planned to be introduced Tuesday.
Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., are scheduled to introduce their highly anticipated bill to reform the mortgage finance system on Tuesday.
The bill would replace the Federal Housing Finance Agency, the current conservator of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), with a new government agency, the Federal Mortgage Insurance Corporation (FMIC).
Corker-Warner Bill
The bill reflects a prevailing view among lawmakers that the two GSEs should cease to exist while retaining some government role to back mortgage lending. The Federal Mortgage Insurance Corporation would be structured on the lines of FDIC to back certain mortgage bonds by well-capitalized institutions.
The FMIC would keep the fees paid by the institutions in a reserve account that would be used only after exhausting a large part of the private capital in the event of any future financial crisis.
The FMIC would purchase home loans from originators, guarantee mortgage-backed securities holders against losses, continue the promotion of affordable housing policies and develop standards for approval of private issuers of MBS.
As reported earlier, U.S. senators are giving final touches to a proposal to liquidate the state-owned mortgage giants, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), and substitute them with a government re-insurer of mortgage securities backed by private capital.
Fannie Mae, Freddie Mac to Liquidate in Five Years
The latest draft of the bill seeks Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) liquidation within five years. Currently, they package mortgages into securities, and provide a 100 percent guarantee on payment of principal and interest on underlying mortgages.
The draft bill seeks private financiers to take a loss of 10 percent of the principal underlying securities.
Recently, the Federal Housing Finance Agency in its 2012 report to Congress tagged Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) as ‘significant concerns’ in the earnings category.
Shares of the mortgage giants Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) were de-listed from the NYSE in 2010. Until recently, these shares traded for pennies. However, they are now up 607 percent and 523 percent in the past six months in over-the-counter transactions.
Large investors like Bruce Berkowitz have been betting that the U.S. government would re-privatize both the mortgage giants.
