The Treasury provided these options as possible ways to solve the problem, without committing to any one over another. That left Congress the opportunity to embrace them or ignore them altogether. Up to now, however, the only sweeping housing finance reform bills proposed remain in the earliest stage of the process, awaiting committee action.
Sammie Ram: Merging and Redefining Fannie Mae and Freddie Mac
One bill (.pdf) was proposed this week, sponsored by Rep. Gary Miller (R-CA). He hopes to wind down Fannie and Freddie and replace them with a new, single government agency to own and guarantee mortgages. He calls it the "Secondary Market Facility for Residential Mortgages." A fitting nickname might be "Sammie Ram" or "Sammie" for short.
Miller's bill puts an interesting spin on the debate. His background is in home building and his district lies is in the Orange County/Los Angeles, California area. As a result, he is very sympathetic to the realtor lobby, which strongly supports continued government support for the housing market. But it also has some conservative glimmers, attempting to ensure that the government's role doesn't become too broad.
So what would Sammie look like? First, it would be an explicit government agency -- not a quasi-private corporation like Fannie. The new agency's control of housing finance would be capped at 50% of the market, leaving the private sector to take on the rest. This limit could be relaxed in times of market distress, however. It would also focus on guaranteeing mortgages and would charge lenders a fee for this service to pay for any mortgages that incur losses. It would have reinsurance with the Treasury for any losses that exceed the value of its insurance fund.
Hoffin Gaes: At Least Five Mini-Fannies
An earlier proposal was offered in May by Rep. Gary Campbell (R-CA). Although Campbell doesn't have a background in the housing industry, he also represents Orange County, CA. His district was home to a couple of now defunct subprime mortgage companies like Ameriquest and New Century. He also supports continued government intervention in housing finance.
His bill, explored in detail here, would create at least five "Housing Finance Guarantee Associations." We'll nickname these "Hoffin Gaes" or "Hoffins" for short. Unlike Sammie, a these Hoffin would be a private firm. It would fund mortgages and would obtain a federal guarantee by paying the government a fee. In this sense, Hoffins would function like a bunch of mini-Fannies, except that the government guarantee would be explicit, instead of implicit.
The Silent Option: Just Let Fannie and Freddie Die Quietly
Of course, there's also some legislation out there that would simply wind down Fannie and Freddie without putting any new firms or agencies in their place. This option dismisses the assertion that the government must maintain a heavy influence in the housing market. Instead, it relies on the private sector to step in by reviving mortgage securitization and possibly the utilization of other markets like one in covered bonds.