Virginia senator Mark Warner, along with colleague Bob Corker (R-Tenn.) — with backing from a bipartisan group of lawmakers — will introduce a bill that would liquidate Fannie Mae and Freddie Mac.

It would replace them with a new agency: the Federal Mortgage Insurance Corp. The plan isn’t final, but here are some provisions of the draft bill:

  • Most of the proceeds of the liquidation would go to the Federal government (some would also go to holders of "junior" preferred shares and holders of common shares of the companies).
  • FMIC would charge a guarantee fee to reinsure loans that meet strict standards (developed by FMIC) — essentially, it would protect taxpayers by only assuming risk in catastrophic circumstances.
  • Private lenders would be required to have enough capital to cover a major property-value drop (like the one we just went through).
  • FMIC would continuing Fannie and Freddie’s business of packaging mortgages into securities, as well as their existing multifamily housing guarantees.
  • FMIC would help smaller lenders issue securities.

Remember, this is based on an early draft of the bill, and it’s going to change. Still, according to Bloomberg,

Housing-industry participants who have seen the draft have been critical of the amount of risk that private capital would assume. 

(Which confuses me. I thought the idea was to get the government and taxpayers out of the business of taking risk on private companies’ behalf. But this is part of the fog of legislation.)

Anyway, you can read more in the Bloomberg story, or by searching on "Secondary Mortgage Market Reform Act of 2013." You can also click here to read the bill itself (PDF).