WASHINGTON – Bolstered by exploding losses at Fannie Mae and Freddie Mac, an influential senator introduced legislation today that would privatize the secondary mortgage market and end government guarantees on mortgages and mortgage backed securities.
“This legislation gradually reduces the government’s footprint in housing finance, brings added transparency to the mortgage market, and fixes many of the market’s infrastructure problems that have come to light since the financial crisis of 2008,” said Sen. Robert Corker of Tennessee, who is one of the senior Republicans on the Senate Banking Committee.
Corker’s bill comes days after Fannie Mae and Freddie Mac, under federal conservatorship since September 2008, reported additional $14 billion of losses for the third quarter and increased their need for taxpayer assistance to more than $160 billion.
The bill, similar to efforts being undertaken in the House, would sell off all systems and technology owned by Fannie and Freddie to private investors and gradually eliminate the government guarantee on mortgage backed securities issued by the two secondary mortgage giants, which now back a staggering 90% of all new single family home loans.
The privatization of the secondary mortgage market has been keenly opposed by credit unions which rely on Fannie and Freddie to buy more than half of their mortgages and to guarantee the MBS they buy with surplus credit union funds.
Corker’s proposal would create a uniform legal structure for MBSs, which would be regulated by the Federal Housing Finance Agency. Under the bill all borrowers would need a 5% downpayment and full documentation to qualify for a loan.
Corker’s Senate bill comes as the House has been debating the privatization for more than a year and represents an increase interest in the effort to shed the government of the growing financial burdens of the Fannie and Freddie bailout.
