FANNIE MAE
FANNIE MAE (MANNIE GARCIA)

Fannie Mae and Freddie Mac would be eliminated and private interests would be on the hook for the first 10 percent of mortgage losses under a bill leaders of the Senate Banking Committee plan to introduce within days.

The bipartisan measure, drafted with input from President Barack Obama’s administration, would replace the U.S.-owned mortgage financiers with a government insurer behind private capital, Senate Banking Committee chairman Tim Johnson and U.S. Sen. Mike Crapo said Tuesday in a statement. The bill would require most borrowers to make down payments of at least 5 percent in the new housing-finance system.

“This agreement moves us closer to ending the five-year status quo and beginning the wind down of Fannie and Freddie while protecting taxpayers with strong private capital, building the components for a stable secondary market and avoiding repeating the mistakes of the past,” said Crapo of Idaho, co-author of the bill and the panel’s top Republican.

Crapo and Johnson, a South Dakota Democrat, have been facing mounting pressure to introduce the legislation with enough time left in the year to push it through the legislative process. They will introduce the bill “in the coming days” and begin fine-tuning it with other members of the committee in the coming weeks, they said in their statement.

The new measure is based on a bill introduced last year by U.S. Sens. Bob Corker, a Tennessee Republican, and Mark Warner, a Virginia Democrat, with some additions. The Johnson-Crapo plan would set specific benchmarks for transitioning from Fannie Mae and Freddie Mac to the new system.

The bill would establish housing-related funds to focus on ensuring sufficient availability. The fund will be paid for through a user fee to the new government reinsurer, the Federal Mortgage Insurance Corp.

To increase access for community banks, the measure would establish a mutual cooperative jointly owned by small lenders to provide a cash window for eligible loans while allowing the firms to retain servicing rights.