SENATOR COLLINS COSPONSORS AMENDMENT TO WIND DOWN TAXPAYER BAILOUT OF FANNIE MAE AND FREDDIE MAC

U.S. Senator Susan Collins is an original cosponsor of an amendment that would put in place an orderly transition period to end the conservatorship of both Fannie Mae and Freddie Mac and requires each to operate without government subsidies as private sector companies.

"The Government Sponsored Enterprise (GSE) Bailout Elimination and Taxpayer Protection Amendment" has been introduced as an amendment to the financial regulation legislation currently being debated by the Senate.

"The financial regulatory reform legislation currently being considered by the Senate completely fails to address the dysfunctional operations of Freddie Mac and Fannie Mae, which were major contributors to the collapse of the nation's housing market," said Senator Collins. "Just this week, Freddie Mac reported that it continues to lose money and needs another $10.6 billion bailout. The Congressional Budget Office estimates that the cost of the government's bailout of Fannie Mae and Freddie Mac could be nearly $400 billion. This amendment will help protect taxpayers by putting an end to the perpetual government bailout of Fannie and Freddie."

The GSE Bailout Elimination and Taxpayer Protection Amendment would:

o End Date for Conservatorship - Provides for a finite end to current conservatorship period for both GSEs at two years from the date of enactment. FHFA has an option to extend conservatorship for six months if FHFA Director determines and notifies Congress that adverse market conditions exist. If at end of conservatorship a GSE is not financially viable, FHFA must place that GSE in receivership. If GSE is financially viable, then it would be allowed to re-enter market under new operating restrictions.

o New Operating Restrictions for Post-Conservatorship - Provides for changes to existing operating structure:
o Sets limits for mortgage assets held on its books of no more than 95 percent of mortgage assets owned on December 31st of the prior year, reduced an additional 25 percent by the end of year one, reduced an additional 25 percent by the end of year two, and reduced to $250 billion by the end of year three;
o Strengthens capital standards, and allows them to be increased by the FHFA as necessary;
o Repeals the temporary increases to conforming loan limit and high-cost area increases, and return to the $417,000 confirming loan limit for the first year, subject to annual adjustments by FHFA;
o Prohibits the purchase of mortgages exceeding the median home price for that area;
o Requires a minimum down payment of at least 5 percent for all new loans purchased by the GSE, increasing to 7.5 percent in the second year and 10 percent in the third year;
o Repeals the GSE's exemption from having to pay state and local taxes;
o Repeals the exemption allowing GSE securities to avoid full SEC registration; and

o Requires Wind Down of Operations and Dissolution of Enterprise - Establishes a three year period after the end of conservatorship for GSEs to operate under new operating restrictions until government charter expires. Upon charter expiration, provides for a 10 year period through which the creation of a separate holding corporation and a dissolution trust fund for any remaining mortgages or debt obligations held by the GSE.

o Special Inspector General - Establishes a Senate-confirmed Special Inspector General (SIG), within the Government Accountability Office, with responsibility for investigating and reporting to Congress on decisions made with respect to the conservatorships of Fannie Mae and Freddie Mac. The SIG would provide quarterly reports to Congress.

o Prevents More Bailouts of Fannie Mae & Freddie Mac - While GSEs remain in conservatorship, reestablishes the Federal funding limit of $200 billion per institution for the GSEs, and requires the GSEs to reduce their portfolio holdings by 10 percent of the prior year's holdings. Also establishes an approval process for any further agreements that puts taxpayer money at risk.

o Budget Status - Includes Fannie Mae and Freddie Mac as a part of the Federal budget as long as either institution is under conservatorship or receivership.

o Minimum Underwriting Standards - Requires FHFA to establish minimum prudent underwriting standards for mortgage loans eligible for GSE purchase. Minimum requirements will include verification and documentation of income and assets relied upon to qualify the borrower for the mortgage loan and determination of borrower's ability to repay the mortgage loan.

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