Late last week, a Democrat and Republican proposed legislation that would see Fannie Mae and Freddie Mac dismantled and replaced by several smaller companies. These smaller companies would create and sell mortgage bonds backed exclusively by the U.S. government, according to the Wall Street Journal.
The firms would not trade on the stock exchange though they would seek private capital. The government would essentially be guaranteeing a slice of the mortgage market and taking on credit risk related to home loans. It would also make up for losses pertaining to the failure of a firm by assessing fees on other firms. [WSJ]