Senate draft bill to purge Fannie-Freddie, create new gov’t mortgage agency

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Photo Credit: MrHarman via Wikimedia Commons

A new bill on the liquidation of the $9.4 trillion mortgage enterprises Fannie Mae and Freddie Mac is expected to provide the long-overdue plan on the future of the housing finance system.

Sponsored by Sen. Bob Corker (R) of Tennessee and Sen. Mark Warner (D) of Virginia, the bipartisan draft bill aims to replace Fannie Mae and Freddie Mac with another government-backed agency in the next five years.

To be named Federal Mortgage Insurance Corp., the new agency will assume responsibility for any catastrophic losses on mortgage bonds.

According to the draft bill, revenues from the liquidation of the two companies would be used to repay the government and preferred and common shareholders.

In 2008, the government seized Fannie Mae and Freddie Mac due to the U.S. housing crisis. The two agencies back about half of all U.S. home loans.

The duo has received around $190 billion in government aid and is expected to pay the U.S. Treasury about $132 billion in dividends by the end of June.

Last week, Bloomberg reported that Fannie Mae and Freddie Mac’s shares recorded their highest level since the 2008 government takeover. The shares were up as much as 1,992 percent.

On Wednesday, shares were down 13% following reports of abolition.

 

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