Posted on 06/10/2013 1:56:07 PM PDT by whitedog57
Senators Corker (R-TN) and Warner (D-VA) have a new bill on what to do with Fannie Mae and Freddie Mac. Warner-Corker Draft
Here are some of the key provisions of the draft bill:
The draft bill would create the Federal Mortgage Insurance Company, an agency that would provide catastrophic reinsurance for mortgage-backed securities. The agency would be governed by a five-member board and replace the FHFA, the existing regulator and conservator of the GSEs.
The FMIC would operate a mortgage insurance fund modeled on the Federal Deposit Insurance Corporation’s insurance fund. Guaranty fees and other payments made to the agency would provide the money for the Mortgage Insurance Fund. Under the bill, the fund must have at least 2.5% of outstanding principal balances insured by the agency.
The FMIC must ensure that the private market entities are in a first loss position and develop appropriate credit risk-sharing standards within five years. The draft bill says the first loss position must be “adequate to cover losses that might be incurred as a result of adverse economic conditions.” Such losses should be “not less than 10% of the principal of” a covered security.
Additionally, the bill says the pools of mortgage securities should be pulled from loans that are geographically diverse and include borrowers with different risk characteristics.
The FMIC would be responsible for creating standards across the secondary mortgage market including for servicing and private mortgage insurance.
The draft bill requires the FMIC to ensure equal access to mortgage securitization platforms by community banks and credit unions. Under the legislation, the FMIC could create a mutual securitization company to meet the securitization needs of smaller institutions, if the agency determined it was necessary.
The bill calls for the creation of the Market Access Fund, an office within the Department of Housing and Urban Development designed to promote rental housing and assist low-income and underserved areas.
The bill would wind down the existing investment portfolios at the GSEs at 15% annually until they are liquidated, likely leaving nothing for current preferred or common shareholders.
The bill would cut single-family conforming loan limits by roughly $42,000 a year over six years to $417,000, b down from $625,000. Guarantees on existing single-family mortgage-backed securities would be assumed by the Treasury, while multi-family guarantees would be transferred to the FMIC without at no cost.i
This seems reasonable on first. But is it?
We used to have a Federal insurance company for the S&L industry called FSLIC (Federal Savings and Loan Insurance Company). It was deeply insolvent by 1989 and it was disbanded (FIRREA). But until it was disbanded, S&Ls were the primary lenders in the mortgage market.
Who took the place of the S&Ls? The GSEs, Fannie Mae and Freddie. And their regulator was OFHEO (Office of Federal Housing Enterprise Oversight) which has been replaced by FHFA (Federal Housing Finance Agency). So market share of S&Ls seamlessly transferred to to the GSEs.
So, this bill wants to unwind Fannie Mae and Freddie Mac BUT form a replacement for the failed S&L insurance company model?
AND there will be an affordable housing component to the insurance company. Don’t we already have HUD and the FHA doing that? As well as the USDA?
Summary: this bill replaces Fannie Mae and Freddie Mac with an S&L-type insurance company that has an affordable housing mission.
In other words, the apparatus for a credit-driven housing bubble remain in place as long as the Administration and Congress can manipulate lending/insurance standards.
Good try, Gentlemen. But not enough safeguards from government tinkering. Imagine someone like Mel Watt as Director?
Why not simply rename Fannie Mae and Freddie Mac as Fannie Mao and Fredo Mac? It would be a lot simpler. Or cancel Fannie Mae and Freddie Mac’s charter and let them soldier on as private corporations without government ties.
I like the catastrophic insurance idea, by the way. As long as there are safeguards in place against “turning up the dials.”
I can’t believe my fellow Tennesseans put Corker and that idiot Alexander into the Senate. I’ve never, and never will, vote for these two fools.
Great idea. I would change one thing.
The 5 person board is picked by random drawing and they only serve for 1 year.
As a matter of fact, the same thing should be done with working polling sites for elections.
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