GSE Reform Bill Quietly in Works Under Sen. Corker
By Donna Borak and Victoria Finkle
A bipartisan group of senators led by Sen. Bob Corker, R-Tenn., is drafting legislation designed to reform the housing finance system, including a plan to wind down the government-sponsored enterprises. The proposal has been deemed by some as an “ambitious solution” to Fannie Mae and Freddie Mac, which were seized by the government in September 2008, and is widely expected to mirror a recent proposal aired by Edward DeMarco, acting director of the Federal Housing Finance Agency. The new proposal is expected to build on a suggestion first outlined by DeMarco earlier this month, which called for the creation of a specially-chartered financial institution that would pool capital from shareholders and guarantee principal and interest payments to mortgage-backed securities holders. The model is similar to Fannie and Freddie’s pre-conservatorship model, but would likely swap an implicit guarantee for an explicit one or set up government insurance structures to address certain challenges. The concept, known as the issuer-guarantor model, could also be supplemented with a structured securities-based model advocated by the Bipartisan Policy Center, according to Karen Shaw Petrou, a managing partner at Federal Financial Analytics.