A
bipartisan group of senators introduced on Tuesday legislation to replace
Fannie Mae and Freddie Mac with a newly created agency.
Citing
the overwhelming presence of the GSEs in today’s mortgage marketplace, Sens. Bob Corker
(R-Tennessee) and Mark Warner
(D-Virginia) unveiled a new piece of legislation designed to wind down the
enterprises and rebuild the private mortgage sector.
Also
involved in the unveiling were Sens. Mike Johanns (R-Nebraska), Jon Tester
(D-Montana), Dean Heller (R-Nevada), Heidi Heitkamp (D-North Dakota), Jerry
Morgan (R-Kansas), and Kay Hagan (D-North Carolina), all members of the Senate Banking Committee.
The
legislation would dissolve Fannie Mae and Freddie Mac within five years of
passage and transfer appropriate utility duties and functions to a “different,
modernized and streamlined agency.” The transfer would be done with a fiduciary
duty to maximize returns to the taxpayer as the GSEs’ assets are sold off.
In
addition, the new bill requires private market participants to hold 10 percent
of the first loss of any mortgage-backed security (MBS) that purchases a
government reinsurance wrap.
It
also sets up an infrastructure for splitting up credit investors—who are
willing to take on the risk of loss—from rate investors, thus keeping mortgage
rates competitive while mitigating the risk of loss to taxpayers.
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