Republicans proposed legislation that would wind down government-backed mortgage giants over the next 10 years, transitioning assets into the private sector via a temporary Mortgage Finance Agencyand pay back taxpayers for bailing out the industry; however, pundits doubt the bill will be passed. Drafters of the legislation assume the housing market will improve and that assets will be able to be sold to banks at a profit, the likelihood of which is in doubt. Debt resulting from foreclosures and a slumping market continue to rise, and it remains to be seen whether the industry rehabilitated and taxpayers made whole. For more on this continue reading the following article from TheStreet.
A bill to wind down Fannie Mae (FNMA) and Freddie Mac (FMCC), recoup taxpayer money spent on bailing out the mortgage giants and transition to full privatization of the U.S. mortgage industry in 10 years was introduced Friday by Senator Johnny Isakson (R-Ga.).
However, Isakson’s plan includes major assumptions including the recovery of the housing market, a backstop with no federal subsidy and plan to eventually sell a new housing agency to the banks at a hefty profit.
Senator Isakson described The Mortgage Finance Act of 2011 as "a detailed roadmap to change the unsustainable course we’re on in which the American taxpayers have been bailing out the mortgage industry to the tune of hundreds of billions of dollars."
In the draft bill, Senator Isakson proposes to place Fannie and Freddie into receivership within 18 months, with the receiver "required to maximize the repayment to taxpayers of the full amount of the bailout since 2008."
A new transitional Mortgage Finance Agency would be created, to operate as a government agency for a 10 year period, purchasing "high quality single family mortgages" from lenders, but also charging lenders "guarantee fees," or "g-fees," which would be actuarially "priced to capitalize a new catastrophic fund, to cover any losses, and, as the transition proceeds, to purchase supplemental insurance from the private-sector."
The g-fees would be uniform to all lenders, so as to "level the playing field and eliminate preferential fee arrangements."
Senator Isakson aims for the new catastrophic fund to be similar to the Federal Deposit Insurance Corp.’s deposit insurance fund, being entirely industry-funded and not requiring any additional federal money in the event of a wide scale housing disruption during the Mortgage Finance Agency’s 10-year life.
The Mortgage Finance Agency would be headed by a presidential appointee and required within three years to "develop a detailed plan for the orderly transition and sale (in whole or in parts)" within 10 years.
Proceeds on the sale of the Mortgage Finance Agency to the private sector would "go to satisfy the unpaid balance of any obligations or residual costs of the receiverships of Fannie Mae and Freddie Mac, then the remaining obligations of the MFA, and finally the residual to pay down the national debt."
The two government-sponsored entities, or GSEs, were taken under federal conservatorship in September 2008. Following a third-quarter net loss of $5.1 billion for Fannie and a net loss of $4.4 billion for Freddie, the Federal Housing Finance Agency, which regulates both GSEs, said that the total amount of taxpayer funds provided to Fannie would reach $112.6 billion and the total bailout for Freddie would reach $72.2 billion.
The FHFA on Oct. 27 revised its estimate for the full GSE bailout, saying "cumulative Treasury Draws (including dividends)," would "range from $220 billion to $311 billion." The dividends paid by the GSEs on the preferred shares held by the government, are financed by further government borrowings.
To illustrate the size of the mortgage mess faced by Fannie, Freddie, the federal government and private investors holding mortgage backed securities, here are some foreclosure numbers from third-quarter Federal Reserve filings by the "big four" U.S. bank holding companies. The data was provided by SNL Financial.
- Bank of America (BAC) had $90.6 billion in one-to-four family residential mortgage loans serviced for others with the underlying homes in some stage of the foreclosure process as of Sept. 30.
- For JPMorgan Chase (JPM), residential mortgage loans in serviced for others in foreclosure totaled $54.7 billion.
- For Wells Fargo (WFC), one-to-four family mortgage loans serviced for others in foreclosure totaled $37.7 billion.
- Citigroup (C) reported $10.3 billion in one-to-four family mortgages serviced for others with collateral homes in the foreclosure process, as of Sept. 30.
This article was republished with permission from TheStreet.