WASHINGTON, March 27 The top Democrat on the
U.S. House Financial Services Committee on Thursday introduced a
draft proposal to abolish Fannie Mae and Freddie Mac
and create a new lender-owned cooperative that would
issue government-backed loans.
Representative Maxine Waters of California outlined a
measure that challenges the more conservative approach of the
panel's chairman. Texas Republican Jeb Hensarling's proposal
would sharply reduce the government's role in housing finance.
The counterproposal is unlikely to gain broad support in the
"Fannie Mae and Freddie Mac's return to profitability and
repayment of taxpayer dollars has led some to rightly speculate
whether (they) need any reform at all," Waters said in a
statement. "I am hopeful that this legislation will continue to
move the conversation on housing finance reform forward."
The House bill maintains a clear government role is needed
to sustain the popular 30-year, fixed-rate mortgage. The
framework takes a similar approach to bipartisan measures
already introduced in the Senate.
The most significant piece of housing finance legislation
was introduced earlier this month by the Democratic chairman of
the Senate Banking Committee, Tim Johnson, and the panel's top
Republican, Mike Crapo.
Fannie Mae and Freddie Mac, the two leading sources of U.S.
mortgage funds, were seized by the government during the
financial crisis in 2008 and propped up with $187.5 billion in
taxpayer funds to keep them solvent.
By the end of March the companies will have sent the
Treasury $202.9 billion in dividends.
Fannie and Freddie ensure the mortgage market stays liquid
by buying loans from lenders and repackaging them as securities
that they sell to investors with a guarantee.
The House plan written by Waters includes a government
guarantee for home loans and creates a lender-owned cooperative
that will issue mortgage-backed securities eligible to receive
federal insurance. This structure would replace Fannie and
Freddie, which would be liquidated over a five-year period.
It creates an explicit government guarantee, paid for by the
industry and used to capitalize an insurance fund that is tapped
in times of financial crisis.
The plan also would give small banks direct access to the
financing for their home loans and ensure they are not shut out
by larger competitors. It provides sources of funding for
With midterm elections approaching in November, House and
Senate lawmakers are expected to turn to the campaign trail
within a few months, leaving little time to deal with the
complex issue of revamping the U.S. housing finance system.
(Reporting by Margaret Chadbourn; Editing by Prudence Crowther)