US Senators recommend closure of Fannie Mae and Freddie Mac

The reinsurance firms to be replaced with a new entity.

New Statesman
Fannie Mae headquarters in Washington, DC. Credit: Getty Images.

A bipartisan group of US senators have introduced a bill to liquidate the government-supported mortgage finance firms Fannie Mae and Freddie Mac within five years.

The bill, which is being led by senators Bob Corker and Mark Warner, also calls for replacement of the two firms with a new Federal Mortgage Insurance Corporation that would provide reinsurance only when a substantial part of private capital is spent in mitigating the situation.

Corker was quoted by Reuters as saying: “It lessens the footprint of the federal government in housing and winds down Fannie and Freddie. But at the same time it keeps the housing finance industry in a liquid state.”

The two firms were bailed out by the US government with $187.5bn during the financial crisis in 2008.In 2010, policy makers excluded the winding of the two institutions from the Dodd–Frank Wall Street Reform and Consumer Protection Act, considering slowdown in domestic housing market.

Now, the improvement in home market has led to introduction of the bill.

Warner told the Financial Times: “There will always be people who say ‘not now’ but with the housing recovery and interest rates still low, this is the time to start down this path. It sure as heck would be my hope that we take this bipartisan product - if there’s a way to improve it, fine - but kicking the can down the road on this one doesn’t structurally improve our system.”

Amy Brundage, a White House spokeswoman, said: “The president strongly supports comprehensive housing finance reform that would forever end Fannie Mae and Freddie Mac’s flawed business model that put American taxpayers on the hook.”

Both the firms currently own half of the entire mortgages in the US.

Meanwhile, the Senate banking committee Banking Committee is working on restructuring the Federal Housing Administration.