A group of U.S. senators from both sides of the aisle is expected to propose legislation to create a government reinsurer to replace Fannie Mae and Freddie Mac, Bloomberg News reported.
The 154-page bill would maintain the federal government’s role backing mortgage lending, but would require private lenders to take a 10 percent loss on the principal of underlying home loans under a “first-loss provision.”
In the absence of Fannie and Freddie, a Federal Mortgage Insurance Corp. would also try to build a common securitization platform to help small lenders issue securities, Bloomberg said.
The bill, sponsored by Senators Mark Warner, D.-Va., Bob Corker, R.-Tenn., and others, was revised from an earlier version that would have had lenders take an even sharper loss on bad mortgages. Still, critics have called the proposal too far a departure from the current system. [Bloomberg News] – Mark Maurer