Housing Finance Reform and Taxpayer Protection Act
The Corker-Warner Housing Finance Reform and Taxpayer Protection Act (S. 1217), introduced on June 25, 2013, would strengthen America’s housing finance system by replacing government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac with a privately capitalized system that preserves market liquidity and protects taxpayers from future economic downturns.
In 2008, Fannie Mae and Freddie Mac were taken into government conservatorship and given a $188 billion capital injection from taxpayers to stay afloat. As a result of this bailout, the private market has almost completely disappeared, and so nearly every loan made in America today comes with a full government guarantee. Despite this unsustainable situation, there has still been no real reform to our housing finance system since the financial crisis.
The Housing Reform and Taxpayer Protection Act, S. 1217:
- Winds down Fannie Mae and Freddie Mac within five years;
- Transfers appropriate functions to a government utility, the Federal Mortgage Insurance Corporation (FMIC), which is modeled in part after the FDIC, to provide catastrophic reinsurance behind 10 percent first-loss, private capital;
- Charges FMIC to maintain an insurance fund with a minimum reserve balance of 2.5 percent of the outstanding balance of covered securities as a catastrophic backstop that would only be utilized in the event that the 10 percent first-loss private capital is completely wiped out;
- Removes shareholders from the government utility, but renews competition and innovation by chartering market-capped, private risk-sharing institutions; and
- Ensures that community banks and credit unions have direct access to the secondary market and equitable pricing with larger originators.
Sponsors of the bill include U.S. Senators Bob Corker, R-Tenn., Mark Warner, D-Va., Mike Johanns, R-Neb., Jon Tester, D-Mont., Dean Heller, R-Nev., Heidi Heitkamp, D-N.D., Jerry Moran, R-Kan., Kay Hagan, D-N.C., Mark Kirk, R-Ill., Joe Manchin, D-W.V., Saxby Chambliss, R-Ga., and Mark Begich, D-Alaska, which includes five Republicans and five Democrats from the Senate Banking Committee.
Press releases, a summary of the legislation and bill text are available below.