A U.S. Senate plan to dismantle Fannie Mae and Freddie Mac may deliver an unintended blow to a fragile housing recovery, Bloomberg reported.
A draft of the measure, which Senate Banking Committee leaders released over the weekend, would replace the two financiers with a government-backed mortgage bond insurer. It would cover losses only after private capital bears the first 10 percent, leading to higher mortgage rates, according to Credit Suisse Group AG analysts. The plan also would eliminate a mandate that a percentage of mortgages go to lower- and middle-income families.
Sen. Tim Johnson, a Democrat from South Dakota, and Sen. Mike Crapo, an Idaho Republican, are trying to pass the measure this year.
"It certainly slows the rate of recovery," said Kevin Chavers, a managing director at BlackRock Inc.
Fannie Mae was established in 1938, near the end of the Great Depression, to boost homeownership by making mortgages more available for low- and moderate-income borrowers. Along with the smaller Freddie Mac, created in 1970, the company bundles loans into mortgage-backed securities that are sold to investors with the support of the government.