Senate banking leaders reach deal on Fannie, Freddie bill outline

Tue Mar 11, 2014 11:59am EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Margaret Chadbourn

WASHINGTON (Reuters) - The leaders of the U.S. Senate Banking Committee on Tuesday outlined plans for legislation to wind down government-owned mortgage financiers Fannie Mae and Freddie Mac that they said would continue to provide access to long-term, fixed-rate mortgages.

Committee Chairman Tim Johnson, a Democrat, and Senator Mike Crapo, the panel's top Republican, announced the agreement after working for months to bridge a partisan divide with the hope of moving legislation this year. They said they were putting finishing touches on a draft bill they planned to release "in the coming days."

Fannie Mae and Freddie Mac, which own or guarantee 60 percent of all U.S. home loans, provide a steady source of mortgage funds by buying loans from lenders and packaging them into securities they sell to investors.

Their central role in housing finance led the government to bail them out to the tune of $187.5 billion when they ran into trouble in the midst of the financial crisis of 2007-2009. Lawmakers from both parties want to revamp the $10 trillion mortgage market to make it less likely taxpayers will ever be put on the hook again.

Under the outline from Johnson and Crapo, private interests would take the first 10 percent of any mortgage losses, before an emergency government backstop would kick in.

"This agreement moves us closer to ending the five-year status quo and beginning the wind down of Fannie and Freddie, while protecting taxpayers with strong private capital," Crapo said in a statement.

The work by Johnson and Crapo builds off a bipartisan measure previously proposed by Senators Bob Corker of Tennessee and Mark Warner of Virginia. While the announcement from Johnson and Crapo marks the latest step forward, threading the needle between centrist lawmakers, liberal Democrats and conservative Republicans is still likely to prove a difficult task.

"This is another step towards reform, but we are still years away from having either the legislative capacity or market willingness to embrace a new mortgage finance system," said Isaac Boltansky, a policy analyst with Compass Point Research and Trading.   Continued...

The headquarters of mortgage lender Fannie Mae is shown in Washington September 8, 2008.REUTERS/Jason Reed