The Fate of Fannie Mae and Freddie Mac

The Senate Banking Committee may vote as early as tomorrow on the proposed bipartisan plan to wind down and replace Fannie Mae and Freddie Mac.  The proposed legislation, known as the Johnson-Crapo bill after Banking Chairman Tim Johnson (D-S.D.) and Senator Mike Crapo (R-Idaho), would shift risk to the private sector and replace Fannie and Freddie with a federal insurance program.   Private capital would cover the first 10% of losses.  The Federal Mortgage Insurance Corporation would provide insurance on mortgage-backed securities meeting certain conditions. 


The bill has the support of HUD Secretary Sean Donovan although it continues to garner criticism from some affordable housing advocates including the National Urban League.  


Fannie Mae and Freddie Mac purchase mortgages from lenders and package them as mortgage-backed securities.  Fannie and Freddie currently back approximately two-thirds of new home loans.