Fannie Mae (FNMA) and Freddie Mac (FMCC) should be replaced with a government corporation that would assume losses in catastrophic circumstances, a bipartisan panel of retired U.S. lawmakers and former officials said in a report today.
The new entity proposed by the Washington-based Bipartisan Policy Center would guarantee principal and interest payments on mortgage-backed securities issued by private lenders, taking a fourth loss position behind borrowers, banks and insurers.
“The problems in housing remain both severe and urgent,” George Mitchell, the former U.S. senator and co-chairman of the panel, said today at a presentation on the report. “More than four years after Fannie Mae and Freddie Mac were placed into conservatorship, the nation lacks a clear vision for the future of housing finance.”
The blueprint is similar to those put forward by the National Association of Realtors, the Mortgage Bankers Association and other groups in that it envisions a continued government role as a backstop for the mortgage market.
Fannie Mae and Freddie Mac had no explicit government backing before they were seized in 2008 after investments in risky loans pushed them to the brink of insolvency. The two companies have since drawn about $190 billion in taxpayer aid and paid Treasury $50 billion in dividends.
Housing-finance reform has failed to gain traction in Washington, in part because Democrats and Republicans are divided over alternatives. Fannie Mae and Freddie Mac have returned to profitability, further sapping momentum for change.
At the same time, taxpayers bear the risk on about 90 percent of new home loans through the two government-sponsored enterprises and agencies including Federal Housing Administration and the Department of Veterans Affairs.
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