Who's on the hit list? The Federal Housing Administration (FHA), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The Government National Mortgage Association (Ginnie Mae) would also have its monthly guarantees of mortgage-backed securities capped and reduced, before being phased out too.
For those of you non-home owners, Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that buy mortgages from banks and mortgage companies, and then bundle them into mortgage-backed securities (MBS). They guarantee the principal and interest payments of the MBS, which are sold to investors — typically investment banks. Doing this allows banks to have more liquid assets (cash money) and make more loans to consumers.
The percentage of each mortgage insured by the FHA would be reduced, and down payments would be increased while reducing maximum loan size. After 5 years, FHA program authorizations would be repealed and all FHA affordable housing goals would be eliminated.
H.R. 3550 would also repeal the ability of the Federal Deposit Insurance Corporation (FDIC) to bailout failing banks during a merger, and reduce FDIC insurance per account to $150,000. Property sales to developers that are below fair-market-value would also be ended. H.R. 3550 would repeal the power of the Federal Reserve to provide bailouts through unsecured loans. The Treasury’s Exchange Stabilization Fund would be limited so that it cannot be used for bailouts.
This bill would also recommend to Congress that appropriate congressional committees should put forward legislation to better deal with bankruptcies by large financial institution.