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California Congressman Suggests GSE Merger

Rep. Gary Miller (R-California) is introducing a new idea for GSE reform-a merger of Fannie Mae and Freddie Mac.


The bill, drafted by Miller and co-sponsored by Rep. Carolyn McCarthy (D-New York), suggests the resulting entity would purchase mortgages and sell them to investors as government-backed securities.

According to Miller's proposed bill, the new corporation would be privately capitalized but not privately owned.

Instead of accumulating a massive mortgage portfolio, the entity's emphasis would be on guaranteeing mortgages of specific standards.


In fact, as regulator of the corporation, the Federal Housing Finance Agency would be charged with making sure it does not exceed 50 percent of the mortgage market.

Critics of the proposed bill suggest a public entity would be vulnerable to the interests of presidents, lawmakers, and special interest groups.

Another criticism is that taxpayers would incur too much risk under the plan.

However, Miller, a real estate developer and former home builder, expects his bill to receive bipartisan support along with backing from bond investors and the real estate industry.

Fannie Mae and Freddie Mac guarantee half of the nation's $10.4 trillion in mortgage debt outstanding. The two GSEs along with federal agencies back about nine out of 10 new mortgages.

Miller credits the collapse of the two GSEs to relaxed lending standards set in place to attract big returns.

His bill is designed to keep large banks from usurping the secondary mortgage market by allowing smaller banks to sell mortgage loans on the same terms as larger banks.

Miller and McCarthy plan to propose their bill Thursday, according to the ""_Wall Street Journal._"":http://online.wsj.com/article/SB10001424052702303982504576428082692469762.html?mod=googlenews_wsj

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.

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