The federal government should create an entirely new secondary market agency for "high-quality" private mortgages that would replace Fannie Mae and Freddie Mac, according to Sen. Johnny Isakson, R-Ga.

The Georgia senator introduced a bill Thursday to wind down and eventually liquidate the two GSEs. His goal 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 his plan Fannie and Freddie would continue to securitize residential loans and support the mortgage market during the start up of the new Mortgage Finance Agency (MFA).

Once the MFA is up and running — with the benefit of government backing — the GSEs would be put through receivership and liquidated.

Isakson expects the MFA will become fully capitalized through its mortgage guarantee business. It would purchase private supplemental insurance to further protect taxpayers from potential losses.

The Republican from Georgia said 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.

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