Senators Near Plan to Abolish Fannie Mae, Shrink U.S. Backstop via Businessweek

A bipartisan group of U.S. senators is putting the final touches on a plan to liquidate Fannie Mae and Freddie Mac (FMCC) and replace them with a government reinsurer of mortgage securities behind private capital.

The proposed legislation, which could be introduced this month, would require private financiers to take a first-loss position adequate to cover price declines as steep as those seen during recessions over the past century, according to a draft obtained by Bloomberg News.

The bill, which is being written by Tennessee Republican Bob Corker and Virginia Democrat Mark Warner with input from other senators, is still being drafted. As the first serious bipartisan effort to shape a new housing finance system, it could frame a discussion that is heating up as the market rebounds.

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