The two top members of the U.S. Senate Banking Committee announced Monday that they have a deal that will create a multi-billion dollar mortgage rescue fund and a new regulator for Fannie Mae and Freddie Mac.
The plan would enable the Federal Housing Administration to guarantee billions of dollars in refinanced mortgages for homeowners whose properties have fallen in value since they took out their loan.
"The bill addresses the root of our current economic problems—the foreclosure crisis—by creating a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes,'' Christopher Dodd, Democrat chairman of the Senate Banking Committee, said in a statement.
The House approved a similar bill earlier this month that the nonpartisan Congressional Budget Office said would leave taxpayers on the hook for $1.7 billion worth of failed loans.
The bill that is expected to clear the Senate Banking Committee on Tuesday is a significantly more modest initiative that would only cost $500 million Under the Senate legislation, Fannie Mae and Freddie Mac would cover the expense of the program, unlike the House bill.
Speaking on CNBC, Shelby said housing finance companies Fannie Mae and Freddie Mac would fund the multi-billion dollar mortgage rescue plan under the compromise he struck with the panel's Democratic chairman.
"This is a victory for the taxpayers. As far as the housing component is concerned, we're not funding this ... with taxpayers money, we're going to do it through a GSE affordable housing fund," Shelby said. (See the entire interview with Maria Bartiromo in the CNBC video at left.)
Importantly, Dodd, of Connecticut, said the new regulator envisioned for Fannie Mae and Freddie Mac would not have the authority to indefinitely control the mortgage finance companies' investments or their capital.
"It does not give this regulator the power to engage in systemic risk issues. ... Secondly, you cannot force (Fannie Mae and Freddie Mac) to raise capital for any reason whatsoever,'' Dodd told reporters about the bill.