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Bill Introduced to Merge Fannie and Freddie

Congressional Representatives Gary Miler (R, CA) and Carolyn McCarthy (D, NY) have submitted a bill proposing that calls for the creation of a single government entity to replace Fannie Mae and Freddie Mac.

H.R. 2413 seeks to create a federal secondary market facility for residential mortgages that is financed by private capital.  The bill would offer a federal backstop via an insurance fund that is funded by guarantee  and reinsurance fees paid by purchases of residential mortgages and mortgage backed securities.  The entity would be considered an "instrumentality" of the Federal Goverment under the direction of a five-person board of directors appointed by the President.

"Unlike the GSE structure, where profits flowed to shareholders, all Facility profits will go to he Treasury," said Miller. "While the government will profit from the Facility created in this bill, no taxpayer dollars will go to the Facility’s operation."

The entity would be regulated by the Federal Housing Finance Authority (FHFA) which would set the standards for the "safe and sound" residential mortgages that the entity would be able to purchase.  This would include the type of mortgages, conforming loan limits, down payments and underwriting standards for allowable loans.

Under the bill, the new entity's purchases would never be allowed to exceed an approximation of 50% of the mortgage originations in the United States.  It sets an initial maximum amount of mortgage assests owned by the facility at $250,000,000,000.  The FHFA would have authority to adjust the amount and set standards for the maximum volume of purhases by the new facility.

Upon enactment, the bill requires that the Treasury Department wind down Freddie Mac and Fannie Mae within 36 months.  It would allow for the transfer of assets, obligations and liabilities to the new Secondary Market Facility for Residential Mortgages.  It also requires full repayment to the taxpayers and the Federal Government for the investments made under the Troubled Assest Relief Program.

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