Fannie, Freddie Death Bill Long On Hope

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.

The Mortgage Finance Agency would be headed by a presidential appointee and required within three years to "develop a detailed plan for the orderly transition and sale (in whole or in parts)" within 10 years.

Proceeds on the sale of the Mortgage Finance Agency to the private sector would "go to satisfy the unpaid balance of any obligations or residual costs of the receiverships of Fannie Mae and Freddie Mac, then the remaining obligations of the MFA, and finally the residual to pay down the national debt."

The two government-sponsored entities, or GSEs, were taken under federal conservatorship in September 2008. Following a third-quarter net loss of $5.1 billion for Fannie and a net loss of $4.4 billion for Freddie, the Federal Housing Finance Agency, which regulates both GSEs, said that the total amount of taxpayer funds provided to Fannie would reach $112.6 billion and the total bailout for Freddie would reach $72.2 billion.

The FHFA on Oct. 27 revised its estimate for the full GSE bailout, saying "cumulative Treasury Draws (including dividends)," would "range from $220 billion to $311 billion." The dividends paid by the GSEs on the preferred shares held by the government, are financed by further government borrowings.

To illustrate the size of the mortgage mess faced by Fannie, Freddie, the federal government and private investors holding mortgage backed securities, here are some foreclosure numbers from third-quarter Federal Reserve filings by the "big four" U.S. bank holding companies. The data was provided by SNL Financial.
  • Bank of America (BAC) had $90.6 billion in one-to-four family residential mortgage loans serviced for others with the underlying homes in some stage of the foreclosure process as of Sept. 30.
  • For JPMorgan Chase (JPM), residential mortgage loans in serviced for others in foreclosure totaled $54.7 billion.
  • For Wells Fargo (WFC), one-to-four family mortgage loans serviced for others in foreclosure totaled $37.7 billion.
  • Citigroup (C) reported $10.3 billion in one-to-four family mortgages serviced for others with collateral homes in the foreclosure process, as of Sept. 30.

RELATED STORIES:








-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

More from Mortgages

How to Make a Bi-Weekly Mortgage Plan Work for You

How to Make a Bi-Weekly Mortgage Plan Work for You

Pros and Cons of Buying a Home With a Pool

Pros and Cons of Buying a Home With a Pool

U.S. Economy Added 103,000 Jobs in March, Missing Projections

U.S. Economy Added 103,000 Jobs in March, Missing Projections

U.S. Economy Seen Adding Jobs at 'Goldilocks' Pace For Stock Investors

U.S. Economy Seen Adding Jobs at 'Goldilocks' Pace For Stock Investors

Can You Skip a Car or Mortgage Payment?

Can You Skip a Car or Mortgage Payment?