Sen. Mike Johanns says momentum is building to deal with one of the causes of the financial collapse that spawned the recession at the end of 2008.
Johanns says the bipartisan group of senators is pushing legislation that would phase-out quasi-governmental lending agencies Fannie Mae and Freddie Mac and replace them with private capital.
“When the housing market collapsed, we began to see that Fannie and Freddie was a failed model,” Johanns tells Nebraska Radio Network. “This attitude of lend money to anyone anytime got us into very, very serious trouble.”
Johanns says taxpayers are no better protected now than in 2008 from a bailout of Fannie Mae and Freddie Mac. The federal government loaned the two $188 billion to keep them afloat and prevent further financial collapse from plunging the country deeper into recession.
Fannie Mae and Freddie Mac defaulted on unsustainable loans in 2008 without sufficient capital to cover the losses. Homeowners lost trillions in equity. Home values dropped as much as 30% in some markets.
Johanns is a member of the Senate Banking, Housing and Urban Affairs Committee. Johanns, a Republican, has been working with Sen. Jon Tester, a Democrat from Montana, on the legislation. It would first require Fannie Mae and Freddie Mac to repay the $188 billion borrowed to keep them solvent. It would replace the quasi-public backing of the mortgage industry with private capital, keeping the taxpayers out of the mix.
The bill has been attracting interest. It now is sponsored by six Republicans and six Democrats. President Barack Obama has expressed interest in the concept. A similar measure is being discussed in the House.
It would keep community banks in the mortgage business as well.
“We want our community banks in Montana, Nebraska, Iowa, wherever to have the ability to access this marketplace and make loans,” Johanns says.
Johanns hopes to get the bill out of the Banking Committee this month so it can go to the Senate floor for debate early next year.
AUDIO: Brent Martin reports [:45]