A bipartisan group of senators introduced a bill last week that is designed to eliminate government-backed mortgage giants Fannie Mae and Freddie Mac in favor of a new issuer—the Federal Mortgage Insurance Corp.
The Housing Finance Reform and Taxpayer Protection Act would immediately and expeditiously wind down both Fannie and Freddie under a fiduciary duty to maximize taxpayer returns. Fannie and Freddie’s multifamily guarantee business would be transferred to the FMIC.
The lawmakers who introduced the legislation include Sens. Bob Corker (R-Tenn.); Mark Warner (D-Va.); Mike Johanns (R-Neb.); Jon Tester (D-Mont.); Dean Heller (R-Nev.); Heidi Heitkamp (D-N.D.); Jerry Moran (R-Kan.) and Kay Hagan (D-N.C.), all of whom are members of the Senate Committee on Banking, Housing and Urban Affairs.
The new FMIC will be modeled on the FDIC in its collection of insurance premiums and maintain a deposit fund on all outstanding obligations. The FMIC is designed to “capitalize the housing finance system by separating credit risk from interest rate risk, and brining in private capital to take on both.” All options will have a minimum of 10 percent equity, and the FMIC will also leave securitization and insurance functions to the private market.
Additionally, the Federal Housing Finance Agency would be eliminated after the establishment of the FMIC, and all staff, technology and infrastructure will be transferred to FMIC.
“The introduction of this bipartisan bill represents an important step in redefining the government role in housing finance and is a positive framework on which to begin this crucial debate,” Mortgage Bankers Association President and CEO David H. Stevens said. “Senators Warner and Corker are to be commended for taking a thoughtful and comprehensive approach to drafting a bill to restructure the secondary mortgage market in a way that provides sufficient liquidity to the market so that lenders can offer a full range of sustainable mortgage credit to qualified borrowers through all market conditions.”