Bipartisan House Bill Would Put Private Firms in GSE Role

House lawmakers have introduced a bipartisan plan in Washington aimed at ending the taxpayer-funded bailouts of ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com by replacing them with a group of private firms to fill the role of issuing government-guaranteed mortgage-backed securities.

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The bill, authored by Reps. Gary Peters (D-Michigan) and John Campbell (R-CA) would overhaul the federal mortgage finance system and wind down Fannie Mae and Freddie Mac while ensuring there is still a viable channel to preserve access to affordable mortgages for middle-class families.

The replacement for Fannie and Freddie would consist of at least five companies funded by private capital that would perform the same secondary market function as the GSEs in issuing mortgage-backed securities (MBS).

Structured similar to public utilities, the new entities would not have exchange-listed sales, but they would have federal guarantees on the mortgage bonds they issue.

Mortgage investments would still be backed by a government guarantee under the new plan, but new strict standards, safeguards, and capital requirements would be laid out to protect taxpayers.

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The bill's sponsors say the new plan would also ensure that housing financial products like the 30-year fixed-rate mortgage remain accessible for qualifying households.

The ""Federal Housing Finance Agency"":http://www.fhfa.gov, which regulates the GSEs, would oversee the new entities. Like the GSEs, they would only buy loans that meet specific standards. The new firms would also pay a fee for the federal government backing into a catastrophic reinsurance fund, similar to the FDIC.

""This is a reasonable, bipartisan approach to achieving two key goals: putting an end to taxpayer-funded bailouts and ensuring that responsible, middle class families can still achieve the dream of homeownership,"" said Rep. Peters.

""The status quo is unacceptable, but eliminating any government role in the mortgage market would undermine the fragile housing recovery and essentially eliminate the 30-year fixed rate mortgage,"" Peters added.

The _Wall Street Journal_ reported that the new plan would ""attract sufficient support from both parties on a politically explosive subject, particularly at a time when gridlock looms over issues such as how to curb federal spending.""

Also under the new plan, securities issuers would be required to keep healthy capital reserves, which would stand between taxpayers and potential losses.

In addition, the fees paid into the catastrophic reinsurance fund could only be tapped after the issuer's assets are exhausted and would cover payment of principal and interest on MBS to investors only.

""With the housing market so fragile, we need practical, bipartisan solutions to protect taxpayers and ensure that middle class families can still have access to affordable mortgages - and that's what this plan achieves,"" said Rep. Peters.