Senators Propose Bill To Dissolve Fannie Mae, Freddie Mac

A bipartisan group of senators created legislation intended to strengthen the housing finance system of the United States by replacing government sponsored enterprises (GSEs) Fannie Mae/ Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac/ Federal Home Loan Mortgage Corp (OTCBB:FMCC) with a privately capitalized system.

Senators Propose Bill To Dissolve Fannie Mae, Freddie Mac

Republican Sen. Bob Corker and Democratic Sen. Mark Warner introduced the “Housing Finance Reform and Taxpayer Protection Act of 2013 in the Senate on Tuesday. The bill proposed the establishment of a Federal Mortgage Insurance System (FMIC) to provide liquidity, transparency, and access to mortgage credit, and to wind down Fannie Mae/ Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac/ Federal Home Loan Mortgage Corp (OTCBB:FMCC) as well as the Federal Housing Finance Agency (FHFA) within five years once the it is enacted.

The FMIC is modeled after the Federal Deposit Insurance Corporation (FDIC) and will take over all appropriate utility duties and functions. The system is required to have an upfront capital of 10 percent to protect taxpayers against bailouts in the future.

In addition, the legislation will replace the previous failed “housing goals” with a transparent and accountable market access fund that focuses on ensuring that availability of sufficient decent housing. A small FMIC user fee from people who choose to use the system will serve as a fund. It will also ensure that institutions of all sizes have direct access to the secondary market to prevent mega banks from absorbing local banks and credit unions after dissolving Fannie Mae/ Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac/ Federal Home Loan Mortgage Corp (OTCBB:FMCC).

In a statement, Sen. Corker emphasized that now is the right time to modernize the unstable system of the housing finance after five years since the financial crisis, and to “finally move beyond the failed GSE model of private gains and public losses.”

“Housing finance is the last piece of unfinished business remaining after the 2008 economic meltdown…We believe the housing market is ready for reforms like this, and that the private sectors has been waiting for new rules of the road,” said Sen. Warner.

Losses Incurred by Fannie Mae And Freddie Mac

During a press conference, proponents of the bill pointed out that the required 10 percent private capital is twice as much as the losses incurred by Fannie Mae/ Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac/Federal Home Loan Mortgage Corp (OTCBB:FMCC) in 2007.  Such amounts could have prevented capital infusion of taxpayers’ money.

“When you’ve got a 10 percent capital buffer in advance it really causes that pricing of risk to be far less important because what you have out there is a huge investment by the private sector in advance of any kind of government reinsurance and that ought to be soothing to taxpayers,” said Corker.

The Obama administration supports the bipartisan bill, according to Amy Brundage, spokesperson for the White House.

Fannie Mae and Freddie Mac’s Flawed Business Model

In an e-mail statement to Bloomberg, Brundage wrote, “The president strongly supports comprehensive housing finance reform that would forever end Fannie Mae and Freddie Mac’s flawed business model that put the American taxpayers on the hook.”

On Tuesday, it has been reported that Freddie Mac/ Federal Home Loan Mortgage Corp (OTCBB:FMCC) plans to start selling notes associated with defaulted home mortgages, an indication that the Federal Housing Finance Agency (FHFA) is focused on reducing the role of the government controlled financier in the residential mortgage market.

About the Author

Marie Cabural
Marie received her Bachelors Degree in Mass Communication from New Era University. She is a former news writer and program producer for Nation Broadcasting Corporation (NBC-DZAR 1026), a nationwide AM radio station. She was also involved in events management. Marie was also a former Young Ambassador of Goodwill during the 26th Ship for Southeast Asian Youth Program (SSEAYP). She loves to read, travel and take photographs. She considers gardening a therapy.