“It’s time to enact fundamental reform of Fannie and Freddie before these companies go from ‘too big to fail’ to ‘too late to fix,’” Hensarling said in a statement released Thursday.
The GSE Bailout Elimination and Taxpayer Protection Act would immediately implement several reforms. It would repeal the GSE’s affordable housing goals and would cap their maximum mortgage portfolio size at $700 billion. That cap would gradually come down to $250 billion over five years.
The bill would also reduce the GSEs’ market share by returning the conforming loan limit to $417,000, and it would increase fees they charge for guaranteeing its securities, or G-Fees, to bring more competitive private capital to the market.
Once conservatorship ends for the Fannie and Freddie, their regulator the Federal Housing Finance Agency would evaluate the financial status of each company and place them into receivership if necessary. If not, the GSEs would be allowed to resume their “limited market operations” for a maximum of three years under certain rules.
According to the bill, during these three years, the minimum down payment would be at least 5% for all new loans. That would increase to 7.5% in the second year and 10% by the third year. After the end of that three-year period, each GSE’s charter expires, according to the bill.
“At that point, Fannie and Freddie must conduct all new operations as fully private sector companies competing on a level playing field without any government advantages,” according to Hensarling.
“Our goal is to help homebuyers stay homeowners, and free taxpayers of the burden that comes when homes get sold to buyers who simply can’t afford them,” Hensarling said. “It’s my hope that President Obama will work with us to pursue a path that will protect taxpayers, end the billions of dollars in bailouts, and bring certainty back to the mortgage market.”