NEW YORK ( TheStreet) -- Senators Bob Corker (R., Tenn.) and Mark Warner (D., Va.) are drafting a bill to dissolve Fannie Mae ( FNMA) and Freddie Mac ( FMCC), while at least giving some consideration to the interest of the companies' common and junior preferred shareholders, according to a Bloomberg report. Bloomberg describes the bill, which is still being drafted: "the first serious bipartisan effort to shape a new housing finance system, it could frame a discussion that is heating up as the market rebounds." Fannie and Freddie, known as the government-sponsored enterprises, or GSEs, together hold roughly $5.2 trillion in mortgage loans and mortgage-backed securities, and continue to play a very important role in mortgage financing in the U.S. Together, the GSEs purchase roughly 90% of newly originated mortgage. The two companies were taken under government conservatorship in September 2008. The U.S. Treasury holds $117.1 billion in Fannie Mae senior preferred shares and $72.3 billion in Freddie Mac senior preferred shares, for bailout funds provided over a period of several years. Both GSEs returned to profitability last year, and have been making very large dividend payments on the senior preferred shares, while dividends on junior preferred shares have remained suspended since September 2008.
Per their amended bailout agreements, Fannie and Freddie are required to pay dividends to the government equal to all of their earnings, less $3 billion apiece in retained earnings, to provide a minimal equity buffer. The government holds warrants to purchase common shares in Fannie and Freddie in sufficient quantities to give the Treasury a 79.9% stake in each GSE, at a very low price of $0.00001 a share. According to the report, Senators Corker and Warner would see Fannie and Freddie liquidated within five years, with the U.S. Treasury taking over GSE mortgage guarantees, and "liquidation first would go to the U.S. government as the senior preferred shareholder in each of the companies, and then to holders of junior preferred shares, followed by holders of the common shares." It is very significant that senators of both parties are finally taking all classes of Fannie and Freddie shareholders into account.