Senators Near Plan to Abolish Fannie Mae, Shrink Government Role

Bloomberg
Senators Near Plan to Abolish Fannie Mae, Shrink Government Role

According to the draft, Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac would be liquidated within five years and the U.S. Treasury would assume responsibility for their existing mortgage guarantees. Photographer: Andrew Harrer/Bloomberg

A bipartisan group of U.S. senators are putting the final touches on a plan to liquidate Fannie Mae (FNMA) and Freddie Mac (FMCC) and replace them with a government reinsurer of mortgage securities behind private capital.

The proposed legislation, which could be introduced this month, would require private financiers to take a first-loss position adequate to cover price declines as steep as those seen during recessions over the past century, according to a draft obtained by Bloomberg News.

According to the draft, Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac would be liquidated within five years and the U.S. Treasury would assume responsibility for their existing mortgage guarantees. Photographer: Andrew Harrer/Bloomberg

The bill, which is being written by Tennessee Republican Bob Corker and Virginia Democrat Mark Warner with input from other senators, is still being drafted. As the first serious bipartisan effort to shape a new housing finance system, it could frame a discussion that is heating up as the housing market rebounds.

“A bipartisan bill that’s thorough becomes, at a minimum, a good baseline to begin the process of the full debate that could go through Congress,” David Stevens, president of the Mortgage Bankers Association, said in an interview.

According to the draft, Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac would be liquidated within five years and the U.S. Treasury would assume responsibility for their existing mortgage guarantees. The two companies, which have been under U.S. conservatorship since 2008, package mortgages into securities on which they guarantee payment of principal and interest.

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