WASHINGTON – A new proposal is being floated in Congress here that calls on the federal government to start from scratch and create an entirely new secondary market agency that would replace Fannie Mae and Freddie Mac.
Sen. Johnny Isakson (R-GA) has introduced a bill calling for winding down and eventually liquidating the two government-sponsored enterprises. Isakson said his objective is to eventually privatize the secondary market for single-family and multifamily mortgages, a business currently dependant on the liquidity provided by Fannie and Freddie.
Under Isakson’s proposal, Fannie and Freddie would continue to securitize residential loans and support the mortgage market during the start up of the new Mortgage Finance Agency. Once the MFA is up and running – with the benefit of government backing – the GSEs would be put through receivership and liquidated.
Isakson said he projects the MFA will become fully capitalized through its mortgage guarantee business. It would purchase private supplemental insurance to further protect taxpayers from potential losses. He said last week that his bill does not create another “self perpetuating” GSE. The government's backing for the MFA will expire after 10 years with the ultimate goal will be to sell the agency to the private sector.
Proceeds from the sale of MFA and the liquidation of Fannie and Freddie will be used to repay the U.S. Treasury, which so far has spent $150 billion to keep the two in the black. “My bill will shut down Fannie Mae and Freddie Mac through an orderly transition, and it will repay the taxpayers,” Sen. Isakson said.
