A powerful Republican congressman late Thursday introduced a GSE reform bill that would push Fannie Mae and Freddie Mac out of conservatorship after two years and fully privatize them at the end of five.

Rep. Jeb Hensarling, R-Texas, is sponsoring his five-year plan to rid the mortgage market of what he calls "Frankensteins" that were originally chartered as government sponsored enterprises.

He also wants to ban any attempt to reduce their 10% dividend payments to the U.S. Treasury. (As reported recently by National Mortgage News, the GSEs want that payment cut to 5%.)

"The GSEs are on track to be the nation's biggest bailout, more than AIG and GM and all the big banks combined," he said. "It's time to enact fundamental reform of Fannie and Freddie before these companies go from 'too big to fail' to 'too late to fix.'"

The Texas lawmaker chairs the House Republican Conference, and is a high ranking member of the House Financial Services Committee.

Among other things, the bill calls for lowering the GSE loan limit to $417,000 immediately upon enactment.

Rep. Hensarling also wants the Federal Housing Finance Agency (FHFA) to start increasing Fannie and Freddie's guarantee fees to "eliminate the GSE's competitive advantage and bring more private capital into the market."

The bill states that if the GSEs are not viable after two years, they will be placed in receivership for liquidation. If they are financially viable, the GSEs will operate under FHFA supervision for the next three years.

However, the GSEs will immediately lose their exemption from Securities and Exchange Commission registration and their exemption from paying state and local taxes.

The bill also directs FHFA to gradually increase the minimum downpayment on GSE loans to 10% over three years while gradually raising their capital requirements.

At the end of the three-year transition period, the bill provides for a mechanism to wind down the GSE legacy assets so they can operate as fully private sector companies.

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