March 24, 2011 (Jeff Alan)
House Republican Jeb Hensarling of Texas has introduced the first bill to scale back Fannie Mae and Freddie Mac and privatize the government-sponsored enterprises within the next five years. The bill calls for eliminating the government’s role in the two mortgage giants and the mortgage market. It also calls for the maximum size of loans across the country backed by Fannie and Freddie to drop to $417,000, which now currently range from $417,000 and up to $729,750 in higher priced markets.

“What we’re trying to do is have a market-based system that doesn’t put people into homes that ultimately they can’t keep,” or require taxpayers to do pricey bailouts, Hensarling says.

The legislation comes on the heels of the Obama Administration’s “white paper” report last month outlining the administrations plan to phase out the GSE’s. The Obama plan did not have a definitive route to take, but instead proposed three possible options.

The first option, which is similar to Hensarling’s bill, would provide no loan guarantees to protect mortgage investors beyond those made by existing agencies such as the Federal Housing Administration.

The second option would create some type of government backstop that would kick in only during market emergencies.

The third option would create new federal loan guarantees to replace some of the roles played by Fannie and Freddie. Many Democrats, and some Republicans, have indicated their preference for such a model.

The bill coincides with the Republican beliefs that a piecemeal approach of proposing individual bills could offer more opportunities for cooperation with the White House.

Some government officials have commented that it may take up to two years before the decision on Freddie Mac and Fannie Mae are resolved, however, GOP lawmakers have expressed concern that the urgency for overhaul will dim as the housing market settles out.

If Fannie and Freddie become profitable by 2013, any changes to the companies are “going to morph more and more in the direction of saving the current system,” said Laurie Goodman, senior managing director at Amherst Securities Group LP.

As with the GOP’s other legislation pertaining to phasing the federal government’s anti-foreclosure programs, the Hensarling bill isn’t expected to go far according to industry experts. Even if it does pass the GOP-led House, analysts say it’s unlikely the Democratic-led Senate will take up the bill.

Tags: GOP, Fannie Mae, Freddie Mac, privatization, Hensarling, maximum loan size, white paper report, pricey bailouts, no loan guarantees, overhaul