Tuesday, April 01, 2014

Senators Johnson & Crapo Seek To Dissolve Fanne Mae & Freddie Mac

Lawmakers are rallying around a core set of principles crafted by Senate Banking Committee Chairman Tim Johnson (D-S.D.) and ranking member Mike Crapo (R-Idaho) that could lead to the dissolution of federal mortgage giants Fannie Mae and Freddie Mac.
The Johnson-Crapo proposal would eventually dismantle government-controlled mortgage giants Fannie and Freddie, and replace them with a Federal Mortgage Insurance Corporation (FMIC) over a period of at least five years.  In order to reduce the government’s role in the market, the new agency would charge fees to provide a federal backstop on mortgage-backed securities and would only step in to cover losses once private investors have exhausted their 10 percent in capital reserves. The new agency’s underwriting standards are expected to set down payment requirements at 3.5 percent for first-time homebuyers and at 5 percent for most other borrowers.
Since Fannie and Freddie were taken over by the government in 2008 and given $188 billion in taxpayer funds to stay afloat, they have become the central backstop in the mortgage market, owning or backing about 60 percent of all mortgages. All told, the federal government guarantees about 90 percent of all new loans.
Democrats and industry advocates insist the housing market cannot function properly without some form of a government backstop in case of a catastrophe. Community groups and liberal lawmakers concerned about affordable credit have been slow to warm to it, and conservatives are balking at the size of the government’s footprint in the plan. (The Hill, 4/1/2014)

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