Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) will introduce legislation this week that seeks to wind down Fannie Mae and Freddie Mac and to allow private capital to play a larger role in the federal housing finance system.
A draft of the legislation would wind down the mortgage giants over five years and replace them with the Federal Mortgage Insurance Corp., which would be a newly created organization structured similarly to the FDIC that would back certain mortgage bonds by well-capitalized institutions.
The institutions would pay fees that the FMIC would keep in a reserve account to be used only after the exhaustion of a large amount of private capital in future economic crises. 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.
The Heritage Foundation said in its blog that the bill’s policies are the same as those that contributed to the housing crisis.
“In the years before the 2008 housing crisis, there was little concern among private investors about the underlying strength of the mortgages that backed MBSs, because Fannie and Freddie assumed these risks with the implicit guarantee of the federal government,” the Heritage Foundation said. “These guarantees are not needed. The federal government already plays the role of underwriter and guarantor through the Government National Mortgage Association, which serves targeted groups of potential homeowners who would not likely be served by the conventional mortgage market. The Corker–Warner bill would effectively place the remainder of the U.S. secondary mortgage markets under the FMIC—as the underwriter, regulator of mortgage-backed security issuers, and backstop to the entire system for all losses not absorbed by private capital.”