End of Fannie and Freddie? Bill aims to strip federal backing

Proposal would draw financing from user-generated fees rather than tax dollars

From left: Fannie Mae, Freddie Mac
From left: Fannie Mae, Freddie Mac

Fannie Mae and Freddie Mac may soon cease to exist, should legislation introduced by the Senate banking committee Tuesday pass.

Private capital would have to take the first 10 percent of mortgage losses under the proposed bill, which would remove much of the federal backing that repackaged mortgage-backed securities have enjoyed since Fannie and Freddie were placed into government conservatorship five years ago. The move would form a Federal Mortgage Insurance Corp. functioning similarly to the Federal Deposit Insurance Corp., which would ensure that financing remains accessible to qualified buyers. User fees would generate funds, rather than tax dollars.

The change aims to ultimately dissolve Fannie and Freddie completely, according to a statement from Idaho Senator Mike Crapo released Tuesday morning.

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“Government control of Fannie and Freddie with no private capital to protect taxpayers against losses is unacceptable,” Crapo said in the press release, adding that the form would “move us toward a stronger housing system that provides a balance between providing broad access to mortgages.”

The proposal caught several industry-watchers off guard, the New York Observer reported, with some saying the legislation would destabilize the multifamily sector.

“Today is a bad day,” Greenberg Traurig head Robert Ivanhoe told the Observer. “I am sure many people in the real estate industry are concerned about the winding down of the largest source of liquidity for multi-family apartment properties, by far, and how they will be financed in the future.” [NYO]Julie Strickland