Congress Takes Renewed Aim At Fannie Mae, Freddie Mac

Risky bets by the mortgage giants Fannie Mae and Freddie Mac helped to trigger the financial crisis. After being bailed out by taxpayers and put under government conservatorship, there's new momentum in Washington to dismantle the mortgage giants.

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For the first time since the housing crash, lawmakers are getting serious about dismantling the mortgage giants Fannie Mae and Freddie Mac. They were rescued with $190 million bailout. Two prominent senators - a Democrat and a Republican - have a bill that's attracting some bipartisan support. A separate Republican bill is being introduced in the House today and a third may soon come from Democrats. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: Fannie and Freddie are deeply woven into the fabric of home ownership in America. Going all the way back to the Great Depression, the government set up Fannie Mae to help Americans get access to safe, long-term affordable loans so that they could go buy houses. And that's what the middle class did for generations after World War II.

And now, the government's talking about getting rid of Fannie and Freddie, and so anybody who owns a house or who might want to own a house someday, will be directly affected by the changes that get made here.

AL DELLIBOVI: Housing is a platform for all Americans to achieve the opportunity for good jobs, dignity, productive lives and most of all, hope in the future.

ARNOLD: Al DelliBovi is president of the Federal Home Loan Bank of New York. He spoke at an event in D.C. along with Senators Bob Corker and Mark Warner. Corker, a Republican, said that their proposal would gradually do away with Fannie and Freddie and turn much of their functions over to the private sector.

SENATOR BOB CORKER: We actually create a market that is more modular, more competitive and a much better system than where we are today. So I think we have struck a very good balance. It's a good starting point.

ARNOLD: Fannie and Freddie also provide government guarantees on mortgages. That's crucial because it can give investors confidence to put up money for home loans. The Corker-Warner bill would replace that with a guarantee from a new agency, one that's more like the FDIC. Most people are familiar with that one. If you put $10,000 in a bank and the bank goes bust, then you get your money back because the bank paid for FDIC deposit insurance.

The takeaway in all this, says Democrat Mark Warner, is that the new system would build up reserves of private money that in a crisis would take big hits before any taxpayer money gets lost. He says that's unlike the current system.

SENATOR MARK WARNER: The current system of private sector gains and public sector losses, I think that's totally unpalatable.

ARNOLD: Critics of the proposal, though, say it would favor the biggest banks. They might get cheaper access to money and offer better rates, and so the big banks would get even bigger and that, in turn, might mean less competition and higher costs for home buyers. Another question: Nick Retsinas, an economist at Harvard University, wonders just how much private capital will step up and for what kind of loans.

NICK RETSINAS: The issue in the shadows lurking behind all these proposals is will we have a system that preserves the 30-year fixed rate amortizable mortgage, which has been the bedrock of housing finance in the United States.

ARNOLD: In other legislation, when Republican bill would dismantle Fannie and Freddie with much less of a government backstop, another bill expected from Democrats argues that a new system could be built using the best parts of Fannie and Freddie without destroying them. Chris Arnold, NPR News.

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