Senate Proposal on Fannie Mae and Freddie Mac

Could Freddie Mac and Fannie Mae be eliminated from the nation’s housing finance system? Senate Banking Committee Chairman and the Committee Ranking member announced a compromise that provides a government guarantee for mortgages but only after private investors have taken the first losses.

“There is near unanimous agreement that our current housing finance system is not sustainable in the long term and reform is necessary to help strengthen and stabilize the economy,” Senator Johnsonsaid in a news release. “This bipartisan effort will provide the market the certainty it needs, while preserving fair and affordable housing throughout the country.”

The Washington Post weighed in on the proposal in an op ed on Friday “Ideally government would get out of the mortgage securitization business, limiting its intervention to a program targeted transparently at low-income, first-time home buyers. Political realities being what they are — chiefly, the housing sector’s dependence on the 30-year, fixed-rate mortgage — such an approach is not in the cards, at least for now.”

The Ranking Member on the House Financial Services Subcommittee on Housing and Insurance, Representative Michael Capuano spoke about the proposal on C-SPAN’s Washington Journal.

The Senate proposal is not expected to be taken to this floor this year. Mean while in the house, there is a competing bill but House Financial Services Committee Chairman Jeb Hensarling. The bill would reduce the government’s support of the mortgage market leaving a scaled down FHA as a backstop for home loans.