The early version of a piece of Senate legislation that would form a new government reinsurer to replace Federal Home Loan Mortgage Corp (OTCBB:FMCC) aka Freddie Mac and Federal National Mortgage Association (OTCBB:FNMA) aka Fannie Mae doesn’t appear to provide any compensation for investors, according to The Wall Street Journal. Nick Timiraos reports that The WSJ has reviewed a draft of the bill and spoken with sources who are aware of the proposal’s provisions.

Fannie Mae

Shares of Fannie May, also known as the Federal National Mortgage Association (OTCBB:FNMA), and Freddie Mac, also known as the Federal Home Loan Mortgage Corp (OTCBB:FMCC) have gone up in recent weeks. Investors have been speculating that since the firms have returned to profitability, lawmakers might decide to change the terms imposed on them by the Treasury Department under the terms of the government bailout.

Details Of The Draft Legislation For Fannie Mae, Freddie Mac

The Treasury Department amended the bailout agreements last summer. The amendment changed the requirement of the 10 percent dividend on the $188 billion in aid the firms received from the government. Instead, the Treasury added a dividend sweep, which gives the Treasury the ability to inject aid as needed to keep the firms profitable, although almost all of their profits are kept as a dividend payment for the government. This prevents both Fannie Mae and Freddie Mac from building capital or redeeming any of the senior preferred shares the government took under the terms of the original bailout.

The general gist of the bill is that it would wind down Federal Home Loan Mortgage Corp (OTCBB:FMCC) aka Freddie Mac and Federal National Mortgage Association (OTCBB:FNMA) aka Fannie Mae over five years and create a new reinsurer. Timiraos reports however, that it also enables the government to keep receiving all of the mortgage guarantee fees. That would mean that most of the revenues from both firms would go to the government rather than counting toward the amount they owe to the U.S. Treasury.

The legislation also enables the government to liquidate some of the firms’ assets so that return to taxpayers would be maximized. Of course the bill may be revised many times yet before it goes up for a vote before the Senate.