- POSTED: 16 May 2014 03:14
A US Senate panel on Thursday narrowly approved reforms that would eliminate government-controlled mortgage finance giants Fannie Mae and Freddie Mac and encourage a greater private-sector role in home loans.
WASHINGTON: A US Senate panel on Thursday narrowly approved reforms that would eliminate government-controlled mortgage finance giants Fannie Mae and Freddie Mac and encourage a greater private-sector role in home loans.
The Senate Banking Committee approved the bipartisan bill by a 13-9 vote, but it was not clear whether the measure will get a floor vote in the full Senate this year after a number of key Democrats objected to it, arguing the reforms went too far in doing away with the current mortgage system.
The two agencies, rescued in huge 2008 bailout, back most of the home loans in the United States by buying mortgages from lenders, packaging them as securities to be sold to investors, and guaranteeing those securities.
Those guarantees currently cover some US$6 trillion in home mortgages, a large majority of the entire market.
The approved measure reflects a deal struck by the panel's leaders, Democratic chair Senator Tim Johnson and ranking Republican Michael Crapo, that gradually winds down the two.
Under the proposal, Fannie and Freddie would be shuttered in favor of a single agency, the Federal Mortgage Insurance Corporation (FMIC).
That would also guarantee mortgages, but private investors would take on more of the risk, 10 percent of the value of the mortgages, reducing the risks that the new agency takes on and forcing some market discipline on the issuance of mortgages.
But by maintaining the government guarantees, the market for the US home finance standard, a 30-year mortgage, would be maintained, avoiding new disruption to the industry.
President Barack Obama's administration praised the Senate Banking Committee's "strong bipartisan" approval of a reform "that helps protect the American dream of home ownership."
"Today's vote marks important progress toward completing one of the biggest remaining pieces of post-recession reform of the financial system," the White House said in a statement.