Bipartisan Senate legislation would wind down Fannie Mae and Freddie Mac in five years and in the interim would maintain the current arrangement in which the mortgage financiers pay all of their profits to the Treasury, Bloomberg reported today. A draft of the measure, released yesterday by Senate Banking Committee Chairman Tim Johnson and Republican Mike Crapo, would ensure that the U.S. maximizes its return on the 2008 taxpayer bailout of the two companies before junior preferred and common shareholders receive any proceeds. The bill would sell off the companies’ assets and replace them with government bond insurance that would kick in only after private capital suffered significant losses. The two senators announced key provisions of the bill on March 11. The five-year wind down of the two companies would be extended if necessary to prevent market disruptions or spikes in borrowing costs. Johnson and Crapo said that they took the “rare action” of releasing bill language on a weekend “to balance the committee members’ interests in having adequate time to review the legislation while advancing housing finance reform in a timely manner.” Meanwhile, investors are suing the U.S. to challenge the arrangement in which all the companies’ profits go to the Treasury.
