According to Housingwire, the House of Representatives submitted a bill outlining details of a timeline to take government-sponsored enterprises (GSEs) out of conservatorship with the intention of eventually removing the government’s guarantee of both Fannie Mae and Freddie Mac, the largest government-backed mortgage finance lenders in the U.S.
The bill is sponsored by Jeb Hensarling, R-Texas, and if passed in its current form, the GSEs would either be forced to operate as standalone companies or be prepared for an eventual wind down by forcing them into receivership. The bill would take effect two years after it became a law, if it passes.
The bill is called the GSE Bailout Elimination and Taxpayer Protection Act (HR 4889). What the bill stipulates:
- The bill dictates that the director of the Federal Housing Finance Agency (FHFA) has to remove the GSEs from conservatorship in the amount of time proposed in the bill—two years after the bill is signed into law.
- The bill would revoke charters for both entities three years after it takes effect, establishing a 10-year-long wind down of the entities’ abilities to make mortgage purchases for securitization.
- Additionally, during that 10-year period, it would be the responsibility of both the FHFA director and the Treasury Secretary to impose regulations divesting GSEs of their holdings.
A spokesperson for Congressman Hensarling, George Rasley, told Housingwire that his purpose for sponsoring the bill was not necessarily to see GSEs abolished, but to make them standalone as regular companies, operating in the free market, and if they can’t then they should be wound down.
“It remains to be seen how their existing obligations would be greeted by the market, since the government has in essence said ‘we’re guaranteeing those,’” Rasley said. “The government is always a poor player in the market. The word free comes before market for a reason, that’s because it doesn’t involved the government.”
Fannie Mae and Freddie Mac have been a hot topic of discussion this year. In recent weeks, both Fannie Mae and Freddie Mac removed their stock from the NYSE due to low stock values.
The bill was introduced to Congress March 19, 2010 and has currently been sent to a committee for review.
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