WASHINGTON ( TheStreet) A bill to wind down Fannie Mae (FNMA) and Freddie Mac (FMCC), recoup taxpayer money spent on bailing out the mortgage giants and transition to full privatization of the U.S. mortgage industry in 10 years was introduced Friday by Senator Johnny Isakson (R-Ga.).
However, Isakson's plan includes major assumptions including the recovery of the housing market, a backstop with no federal subsidy and plan to eventually sell a new housing agency to the banks at a hefty profit.
Senator Isakson described The Mortgage Finance Act of 2011 as "a detailed roadmap to change the unsustainable course we're on in which the American taxpayers have been bailing out the mortgage industry to the tune of hundreds of billions of dollars."
In the draft bill, Senator Isakson proposes to place Fannie and Freddie into receivership within 18 months, with the receiver "required to maximize the repayment to taxpayers of the full amount of the bailout since 2008."A new transitional Mortgage Finance Agency would be created, to operate as a government agency for a 10 year period, purchasing "high quality single family mortgages" from lenders, but also charging lenders "guarantee fees," or "g-fees," which would be actuarially "priced to capitalize a new catastrophic fund, to cover any losses, and, as the transition proceeds, to purchase supplemental insurance from the private-sector." The g-fees would be uniform to all lenders, so as to "level the playing field and eliminate preferential fee arrangements." Senator Isakson aims for the new catastrophic fund to be similar to the Federal Deposit Insurance Corp.'s deposit insurance fund, being entirely industry-funded and not requiring any additional federal money in the event of a wide scale housing disruption during the Mortgage Finance Agency's 10-year life.