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A Senate panel passed legislation on Thursday that would wind down Fannie Mae and Freddie Mac, and prevent taxpayers from financing another bailout, similar to the financial crisis in 2008. Introduced by Senators Tim Johnson (D-S.D.) and Mike Crapo (R-Idaho), the bill sought to create a new government agency, the Federal Mortgage Insurance Corporation (FMIC).
Some of the tasks of the FMIC include monitoring the mortgage finance market, creating securitization standards in loans, and insuring mortgage-backed securities that have gained approval. Although the Johnson-Crapo bill received a 13-9 vote, it garnered little support from Democrats. The minimal democratic support is a hurdle for the Obama administration which has tried hard to gain support.
Opponents of the bill believe too much risk would be involved which, in turn, would be a detriment to the economy. For example, the FMIC would provide a government guarantee for mortgage bonds. However, the guarantee will only come into effect after losses surpass whatever amount private investors chose to put up. In addition, other opponents thought the bill had too many complexities and would still affect taxpayers.
Supporters of the bill contend that the measure will protect the taxpayers and ensure better access to mortgages for low-income borrowers, while preserving the government-backed 30-year mortgage.
Despite getting passed by the Senate panel, the bill will most likely not survive the House of Representatives which is predominately Republican. Regardless, Senator Crapo said the bill was an important milestone. Both Senator Johnson and Crapo will continue to seek support for their legislation.