A bipartisan group of U.S. senators is putting the final touches on a bill that would liquidate Fannie Mae and Freddie Mac and replace them with a government reinsurer of mortgage securities behind private capital, Bloomberg News report yesterday. The legislation, written by Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) with input from other senators, is likely to be the first detailed blueprint reflecting a growing consensus in Washington, D.C., that the U.S. role in mortgage finance should be limited to assuming risk only in catastrophic circumstances. The draft bill would require private financiers to take a first-loss position adequate to cover price declines as steep as those seen during recessions over the past century. According to the draft, Washington, D.C.-based Fannie Mae and McLean, Va.-based Freddie Mac would be liquidated within five years and the U.S. Treasury would assume responsibility for their existing mortgage guarantees.
