Bipartisan Plan Reached On Fannie-Freddie Overhaul

Details will be out this week for a measure to phase out Fannie Mae and Freddie Mac. The plan is to use private insurers to backstop home loans instead of the government-controlled mortgage giants.

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Senate lawmakers, this week, are announcing a bipartisan plan to overhaul the nation's mortgage market. The stock prices of the government-controlled mortgage giants Fannie Mae and Freddie Mac plunged on the news.

NPR's Chris Arnold has our report.

CHRIS ARNOLD, BYLINE: If Fannie Mae and Freddie Mac were houses, it'd be fair to say that they had a serious wiring problem which blew up when the financial crisis hit. And the government took them over to get the lights back on. The two government-backed firms are crucial for allowing money to flow to millions of Americans buying homes or refinancing.

So, to continue the metaphor, this latest proposal from lawmakers says, basically, OK, we've made some repairs, but now we want to tear down Fannie and Freddie and start over.

MIKE CALHOUN: It's a radical surgery proposal, it's somewhere between a complete tear-down and an extreme gut rehab. The question is does that get us to a better place?

ARNOLD: That's Mike Calhoun, the president of the Center for Responsible Lending. Proponents of the new approach say that it would protect taxpayers in a future housing crash. That's because it puts private capital at risk ahead of a government backstop for housing. And it would create an affordable housing fund.

But Calhoun still worries that this may be the wrong approach, because he says it transfers power and control from government to private financial firms.

CALHOUN: And middle and moderate income families might be less served with this approach. The new model could make it harder and more expensive for a lot of people to get mortgages.

ARNOLD: Senate Democrat Tim Johnson and Republican Mike Crapo say they'll formally unveil the details of the proposal this week.

Chris Arnold, NPR News.

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