House Republican Conference Chairman Jeb Hensarling (R-Texas) will introduce legislation Thursday to wind down Freddie Mac and Fannie Mae in five years, CNBC has learned.
The bill allows for two additional years in conservatorship (with certain reforms imposed during that period) and then a three-year transition process with additional reforms. The GSE charters would expire five years after enactment of the bill.
In an interview Thursday, Hensarling told CNBC that he knows the winddown can’t be done overnight, which is why he’s put the five-year time frame in place.
“Ultimately we want to ensure that, what I think most people believe will prove to be the mother of all taxpayer bailouts, ceases,” Hensarling said.
And, he said that he hopes to find common ground with the Obama administration, which is working on its own plan to overhaul the so-called Government Sponsored Enterprises (GSEs), which have been in federal conservatorship since the economic collapse of 2008.
“I’ve had the opportunity to speak to high-ranking officials within Treasury: It appears that they are certainly open to this,” Hensarling said.
“There’ll have to be a full and vigorous debate in both the House and the Senate. But I think on both sides of the aisle, there’s an agreement that the Fannie Mae , Freddie Mac model has to end.”
Among other features, the new bill would:
- Repeal the GSEs' "affordable housing goals" mandate and the Affordable Housing Trust Fund
- Shrink the size of the GSEs by capping their maximum portfolio size at $700 billion and gradually reducing that cap to $250 billion over five years
- Increase guarantee fees (‘G-Fees’), to eliminate the GSEs’ competitive advantage and bring more private capital into the market
- Reduce the GSEs’ market share by returning the conforming loan limit to its pre-housing crisis standard limit of $417,000.
The Obama administration has said it, too, wants drastic changes in the way Freddie and Fannie operate. On Wednesday, Treasury Secretary Geithner said as much in testimony on Capitol Hill. “We do think though that over a gradual period of time over five to seven years we can have the private sector come back in and take over that market and return to a market where they are the dominant provider of mortgage finance,” Geithner said.
Still, there will be disagreement on how far and how fast to remove government support from the housing market. One fear in the back of the minds of administration officials is how much impact such a move will have on home prices, which are kept higher by government intervention.
Political figures will be loath to do anything that could cause a broad decline in house prices for homeowners already struggling with the impact of the market crash of 2008.
Hensarling said, though, that he doesn’t see a five-year time frame as a precipitous transition. “If we don’t start today, we will never get it done,” he said. “Frankly, the sooner we realize the market value in our residential housing market, the sooner that we can get along the road to the recovery.”