Hensarling drops bill that would drop Fannie, Freddie

Once the conservatorship window closes, the government-sponsored enterprises would be evaluated for financial viability. If the Federal Housing Finance Agency determines they cannot stand on their own, they would be placed into receivership.

If viable free of government support, the GSEs could continue to function in a limited role for up to three more years. After that time, Fannie’s and Freddie’s charters as GSEs would expire, rendering them completely private entities.

His measure would also institute several immediate changes to Fannie and Freddie, including a reduction in the size of loans they can guarantee, while increasing the fees required to obtain such a guarantee. In addition, their portfolios would be capped at $700 billion, which would gradually reduce to $250 billion over a five year period.

Hensarling’s bill to end Fannie and Freddie comes on the heels of the administration’s report on the nation’s housing system that actually hits some of the same points.

That report, released in February, laid out three paths for the nation’s housing system, but all included the ultimate goal of winding down Fannie and Freddie, and returning the private market to a significant role in America’s housing. The report did not include any specific timeframe for that wind down, but Treasury Secretary Timothy Geithner has said he would expect such a major move to take between five and seven years.

While both Republicans and the White House agree the GSEs must go, they differ in what role the government should play once they are gone. In each of the three options, the White House was adamant that the government must play some part, even if it is limited to assistance for low-income borrowers.

House Republicans, meanwhile, have been vocal proponents of a wholesale shift to a completely private housing finance system, free of government intervention.

The House GOP is already attempting to peel the government away from housing, pushing four bills, each of which would eliminate one of the administration’s housing relief programs. Three of the four bills have been sent to the Senate, while the fourth is slated for floor consideration in two weeks, when the House returns from a week-long recess. That bill would eliminate a cornerstone of the administration’s housing relief efforts, the Home Affordable Modification Program.

While Republicans have touted these bills as saving taxpayers billions by shuttering ineffective programs, they are unlikely to become law. Democrats retain the majority in the Senate, and the president has threatened to veto each one.