Sen. Bob Corker, R-Tenn., Wednesday introduced legislation that would reduce Fannie Mae and Freddie Mac's share of the mortgage market by "at least 10%" per year.
The bill also calls for a reduction in the credit guarantee the GSEs provide MBS investors to 90%. This 10% haircut on timely payment of interest and principal on their mortgage-backed securities would go into effect six months after enactment of the Corker bill.
"We are no closer to transitioning Fannie Mae and Freddie Mac off government life support than the day the firms were taken under direct government control in 2008," Sen. Corker said.
The Tennessee senator wants his bill to be a "marker," starting the legislative process to gradually reduce the GSEs' footprint over a 10-year period .
The Senate Banking Committee member also joined Sen. Kay Hagan, D-N.C. in sponsoring a bill to create a covered bond market in the U.S.
Covered bonds are common in Europe and Canada. They can be collateralized by mortgages, consumer loans and other assets.
"The U.S. lags behind its global peers in the development of a covered bond market because we lack a legislative framework for issuers and investors," Sen. Hagan said. "With a legislative framework in place, U.S. financial institutions will have a powerful tool that can be used to fund loans to small businesses and households."
Senators Chuck Schumer, D-N.Y. and Mike Crapo, R- Idaho, also are co-sponsoring the covered bond bill.
It is modeled after a similar covered bond bill in the House sponsored by Reps. Scott Garrett, R-N.J., and Carolyn Maloney, D-N.Y.
