After five years of conservatorship, a bipartisan bill has been yet again introduced to modify the housing finance system by replacing Fannie Mae and Freddie Mac.
On Tuesday, June 25, Senator Bob Corker (R-TN), Mark Warner (D-VA
), Mike Johanns (R-NE), Jon Tester (D-MT) and others of the Senate Banking, Housing and Urban Affairs Committee introduced the Housing Finance Reform and Taxpayer Protection Act.
The proposed act will replace the government-sponsored entities with a privately capitalized system.
“Five years after the financial crisis, it is past time for us to modernize our unstable system of housing finance,” said Corker. “The framework we’re presenting here will protect taxpayers while maintaining market liquidity, and is the best opportunity we’ll have to finally move beyond the failed GSE model of private gains and public losses.”
But on a practical level, what does the legislation mean?
According to Corker’s office, the Housing Finance Reform and Taxpayer Protection Act (S. 1217) would:
• Mandate 10 percent capital, up front, for the system to protect taxpayers against future bailouts.
• Wind down Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (FHFA) within five years of bill passage.
• Transfer appropriate utility duties and functions to the modernized, streamlined and accountable Federal Mortgage Insurance Corporation (FMIC), modeled in part after the FDIC.
• Replace the failed “housing goals” of the past with a transparent and accountable market access fund that focuses on ensuring there is sufficient decent housing available. The fund is NOT paid for with tax dollars, but through a small FMIC user fee that only those who choose to use the system pay.
• Ensure institutions of all sizes have direct access to the secondary market so local banks and credit unions aren’t gobbled up by the mega banks when Fannie and Freddie are dissolved.