U.S. Senator Bob Corker (R-Tenn.), a member of the Banking, Housing and Urban Affairs Committee, will today introduce the Mortgage Market Privatization and Standardization Act (S.1834). This bill aims to responsibly unwind GSEs Fannie Mae and Freddie Mac.

"We are no closer to transitioning Fannie Mae and Freddie Mac off government life support than the day the firms were taken under direct government control in 2008," Corker said in a news release. "We're introducing this bill to lay down a marker and get a conversation going that Washington has put off for far too long. We must begin the process of responsibly unwinding Fannie and Freddie."

The 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.      

The new bill aims to slowly reduce the portfolio of mortgage-related assets guaranteed by the GSEs. It also takes steps to bring uniformity and transparency to the housing market so that private capital can begin to replace the GSEs.

The two agencies now own or guarantee half of all U.S. mortgages worth $5 trillion. They also back 90% of all new home loans. The two firms combined have already cost taxpayers more than $150 billion, according to the release.

The legislation proposed to wind down Fannie Mae and Freddie Mac and reduce each year the percentage of newly issued MBS principal that is guaranteed by the government agencies. The percentage guaranteed must be reduced to zero within 10 years, at which point MBS will be wholly privatized.

It also proposes to create  an industry-financed database that makes uniform performance and origination data on mortgages available to the public via the GSE regulator the Federal Housing Finance Agency (FHFA).

The legislation also initiates a process for creating deliverability rules and technology necessary for the TBA futures market with no government guarantee. It also directs the sale of any technology, home price indices, and systems currently owned by the GSEs to private investors.

Through the new legislation, Qualified Residential Mortgage and risk retention would also be replaced with a 5% minimum down payment and full documentation requirements under the proposed legislation.

It would also create a uniform pooling and servicing agreements and a new electronic registration system or MERS 2 where all loans are transferred under one system regulated by the FHFA and instructs federal regulators to develop uniform practices and streamline mortgage regulations.
            

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.