A plan to phase out government-controlled mortgage giants Fannie Mae and Freddie Mac and use mainly private insurers to backstop home loans has advanced in Congress, The Associated Press reported yesterday. The agreement by two key senators and a White House endorsement sent shares of Fannie and Freddie sinking Tuesday. Fannie stock fell $1.79, or more than 30 percent, to $4.03. Freddie dropped $1.48, or 26.8 percent, to $4.04. The plan by Sen. Tim Johnson (D-S.D.), chairman of the Banking Committee, and Sen. Mike Crapo of Idaho, its senior Republican, would create a new government insurance fund. Investors would pay fees in exchange for insurance on mortgage securities that they buy. The government would become a last-resort loan guarantor. President Barack Obama proposed an overhaul of Fannie and Freddie last year, but Congress has struggled to craft legislation. The government rescued the two mortgage giants at the height of the financial crisis in September 2008 with a $187 billion bailout, which they have since repaid.
