Tennessee Senator Bob Corker introduced legislation Tuesday to replace mortgage finance giants Fannie Mae and Freddie Mac with a new government agency.
Since the 2008, Fannie, Freddie and other government-backed agencies have insured nearly 90 percent of new mortgages. While that has made home loans widely available despite the financial upheaval, it means taxpayers are at risk if homeowners default on their loans.
Corker has proposed that a borrower would either have to put 20 percent down to get a government-backed loan, or, if the borrower put down less money, would have to pay for mortgage insurance to make up the difference. Under this plan the government would create a new single agency, modeled after the FDIC to insure these mortgages.
This proposal is similar to the way mortgages were made before the Savings and Loan Crisis and is modeled after the way most mortgage loans are made in many other countries.
But the way the government structures the loss and capital requirements could make it more difficult for borrowers to get a home loan, or more importantly could drive up the costs for loans. But the restructure is needed and this bill will provide a way to begin the conversation.