Following on the heels of last year’s bi-partisan “Housing Finance Reform and Taxpayer Protection Act of 2013”, which was introduced into the Senate by Senators Corker and Warner, a similar bill was recently introduced in the Senate that could result in the wind-down of Fannie Mae and Freddie Mac. Under the bi-partisan “Housing Finance Reform and Taxpayer Protection Act of 2014” (the “Reform Bill”), recently introduced by Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID), Fannie Mae and Freddie Mac would be replaced by a new independent agency, the Federal Mortgage Insurance Corporation (the “FMIC”), within five years. The FMIC would be tasked with operating a Mortgage Insurance Fund to provide a limited, government-backed guarantee on qualifying, privately issued mortgaged-back securitizations.

The Reform Bill would require private investors to retain a 10% first-loss position before any government guaranty would kick in. Additionally, the Reform Bill could have the FMIC establish a securitization platform aimed at standardizing securitization agreements and contractual terms for both covered and non-covered securities.

Other legislation addressing housing finance reform was introduced into the House by House Financial Services Committee Ranking Member Maxine Waters, the “Housing Opportunities Move the Economy Forward Act of 2014”. Like the Senate bill, this bill would replace Fannie Mae and Freddie Mac within five years and create a new independent agency, the Mortgage Securities Coop (the “MSC”), which would operate a similar Mortgage Insurance Fund to provide a limited, government-backed guarantee on qualifying, privately issued mortgaged-back securitizations. Among other differences between the bills, the MSC, and not private investors, would hold the first-loss position required on all mortgage loans with the government guaranty.