Members of the Senate Banking, Housing, and Urban Affairs Committee have introduced legislation that would shut down Fannie Mae and Freddie Mac over time and replace them with a privately capitalized home financing system geared toward protecting taxpayers from future economic crises.

Several finance industry groups, including the American Bankers Association, favor the proposal.

The Housing Finance Reform and Taxpayer Protection Act—introduced on June 25 by Sens. Bob Corker (R-TN), Mark Warner (D-VA), Mike Johanns (R-NE), Jon Tester (D-MT), Dean Heller (R-NV), Heidi Heitkamp (D-ND), Jerry Moran (R-KS), and Kay Hagan (D-NC)—would wind down government-sponsored enterprises (GSEs) Fannie and Freddie within five years of passage.

“We have designed thoughtful reforms that will protect taxpayers from future downturns while responsibly preserving the availability of the 30-year fixed-rate mortgage for homebuyers,” said Warner in a news release on the bill. “We believe the housing market is ready for reforms like this, and that the private sector has been waiting for new rules of the road.”

The legislation also would:

• Create a Federal Mortgage Insurance Corp. (FMIC) modeled in part after the FDIC.

• Mandate 10 percent private capital, upfront, for the system to protect taxpayers against future bailouts.

• Set up a transparent and accountable market access fund that focuses on ensuring that sufficient decent housing is available. (The fund would come from a small FMIC user fee that only those who choose to use the system would pay.)

• Ensure financial 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 shutter.

Representatives of a number of financial industry associations have either spoken up in support of the bill, or said it’s a step in the right direction.

David H. Stevens, Mortgage Bankers Association president and CEO:

“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. 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.”

Debra W. Still, Mortgage Bankers Association chairman:

“Fannie Mae and Freddie Mac have been in conservatorship for almost five years now, and it is important that policymakers begin defining a long-term plan for the future role of the federal government in the mortgage market. The Corker-Warner bill is a significant milestone and should get policymakers headed in that direction.”

Frank Keating, American Bankers Association president and CEO:

“This bipartisan legislation is a positive first step in what is certain to be a long process toward creating a sustainable, rational, and limited role for the federal government in supporting and regulating a mortgage market that is appropriately and predominately filled by the private sector. There is much work yet to be done, but this bill is a strong foundation on which to begin the process.”

Rick Judson, National Association of Home Builders chairman:

“This bill will advance the debate on GSE reform in an earnest manner. As private lenders gradually re-enter the mortgage market, it is essential that the federal government plays a proper role in backing up the nation’s housing finance system to ensure liquidity and stability for homeownership and rental housing. We look forward to participating in the discussions to reform the mortgage finance system as the bill moves forward.”

Independent Community Bankers of America:

“ICBA appreciates and is encouraged by the inclusion of certain provisions in the bill that would help provide access for community banks to the secondary market without requiring them to take on the additional risk and cost of securitizing loans. ICBA and the nation’s community banks look forward to continuing to work with Congress on this issue as the debate continues.”

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