U.S. Senators 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 members of the Senate Banking, Housing and Urban Affairs Committee, introduced legislation last week which they say will strengthen America's housing finance system by replacing government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac with a privately capitalized system that preserves market liquidity and protects taxpayers from future economic downturns.
"Five years after the financial crisis, it is past time for us to modernize our unstable system of housing finance," said Corker in a news release. "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."
In 2008, Fannie Mae and Freddie Mac were taken into government conservatorship and given a $188 billion capital injection from taxpayers to stay afloat. As a result of this bailout, the private market has almost completely disappeared, and so nearly every loan made in America today comes with a full government guarantee. Despite this situation, the bill's sponsors say there has still been no real reform to the housing finance system since the financial crisis.
The Housing Finance Reform and Taxpayer Protection Act, S. 1217, if enacted, 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.