United States Senator Bob Corker (R-TN) has announced the introduction of the Residential Mortgage Market Privatization and Standardization Act to responsibly unwind the government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac—and end dependence on the government for housing finance. The Mortgage Market Privatization and Standardization Act would gradually reduce the portfolio of mortgage-related assets guaranteed by Fannie Mae and Freddie Mac and take steps to bring uniformity and transparency to the housing market so that private capital can begin to replace the GSEs. Taken into government conservatorship at the height of the 2008 financial crisis by the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac currently own or guarantee half of all mortgages in the nation, worth $5 trillion, and back 90 percent of all new home loans. The two firms combined have already cost taxpayers more than $150 billion.
“We are no closer to transitioning Fannie Mae and Freddie Mac off government life support than the day the firms were taken under direct government control in 2008," Sen. Corker said. "We’re introducing this bill to lay down a marker and get a conversation going that Washington has put off for far too long. We must begin the process of responsibly unwinding Fannie and Freddie. This legislation gradually reduces the government’s footprint in housing finance, brings added transparency to the mortgage market, and fixes many of the market’s infrastructure problems that have come to light since the financial crisis of 2008. These are sensible steps that can earn back private capital and ultimately get America’s housing market back to fundamentals and away from undo government involvement.”
The legislation contains the following elements:
►Wind down of the GSEs: Reduces each year the percentage of newly issued mortgage-backed securities (MBS) principal that is guaranteed by Fannie Mae and Freddie Mac. The percentage guaranteed must be reduced to zero within 10 years, at which point MBS will be wholly privatized.
►Mortgage market transparency: Creates an industry-financed database that makes uniform performance and origination data on mortgages available to the public through the FHFA.
►Creation of a new TBA market: Initiates a process for creating deliverability rules and technology necessary for the “to-be-announced” (TBA) futures market with no government guarantee.
►Monetization of business assets: Directs the sale of any technology, home price indices, and systems currently owned by the GSEs to private investors.
►Uniform underwriting standards: Replaces the Qualified Residential Mortgage (QRM) and risk retention with a five percent minimum downpayment and full documentation requirement.
►Residential mortgage market uniformity: Creates a uniform pooling and servicing agreement (PSA) and a new electronic registration system (MERS 2) where all loans are transferred under one system regulated by the FHFA and instructs federal regulators to develop uniform practices and streamline mortgage regulations.