Isakson’s bill would replace Fannie and Freddie with a single Mortgage Finance Agency to guarantee residential mortgages. It would only back mortgages with at least 5 percent down as well as private mortgage insurance and supplemental insurance to cover half of the loan’s value. That puts taxpayers on the hook for only the other half.
After 10 years, that agency would become a private entity, perhaps owned by stock holders or other financial institutions. Isakson said the goal is to get taxpayers mostly out of the mortgage-guarantee business.
“The government has a role but it doesn’t need to be the total custodian of real estate mortgages in America, which right now it is through Freddie Mac, Fannie Mac and FHA,” Isakson said. “We would prefer to have a marketplace that the private sector is responding because of the soundness of the mortgage system in its entirety.”
Isakson said proceeds from sale or privatization of the Mortgage Finance Agency would be used to pay back the government bailout of Fannie and Freddie.
“If, over 10 years, they get all the kinks out, underwriting takes place, the loans are made, the securities perform, then you’ve got a real saleable entity to the private sector,” he said.
“The goal is eventually to take the American taxpayer out of the mortgage-guarantee business as far as Freddie and Fannie’s concerned.”
Isakson’s plan would also create a catastrophic fund to cover losses in case of another housing meltdown. Fees charged to borrowers and lenders would create the fund.