WASHINGTON — A bipartisan group of senators proposed an overhaul of housing finance that would gradually eliminate Fannie Mae and Freddie Mac, government-sponsored mortgage-guarantee giants, and shift more mortgage and credit risk to the private sector.
Eight lawmakers from the Senate Banking Committee — four Democrats and four Republicans — said Tuesday that their legislation would protect taxpayers from bearing the costs of housing market downturns, as occurred in the 2008 financial crisis when Fannie and Freddie were nationalized and bailed out with $187 billion in taxpayer-funded loans.
‘‘All these years later, nothing has changed,’’ said Senator Bob Corker, Republican of Tennessee. ‘‘It’s time to end this failed model.’’
Senator Mark Warner, a Virginia Democrat who with Corker spearheaded the effort, said housing finance is ‘‘the last piece of unfinished business remaining after the 2008 economic meltdown.’’
White House spokeswoman Amy Brundage said President Obama welcomed the bipartisan effort. ‘‘The president strongly supports comprehensive housing finance reform that would forever end Fannie Mae and Freddie Mac’s flawed business model that put the American taxpayers on the hook,’’ she said.
The legislation would create a new Federal Mortgage Insurance Corp. to provide backstop insurance, available only after a substantial amount of private capital is used up.
Fannie and Freddie currently own or guarantee half of all US mortgages and back nearly 90 percent of new ones. With the revival of the housing market, the two enterprises have returned to profitability, with profits going to the government. Fannie and Freddie make loans but buy mortgages from lenders, package them as bonds, guarantee them against default, and sell them to investors.
The legislation would wind down Fannie and Freddie operations within five years and require every mortgage-backed security issued through the new FMIC to have a private investor bearing the first risk of loss and holding at least 10 percent in equity capital for every dollar at risk.
Policies that have forced Fannie and Freddie to assure loans go to those below the median income level would be eliminated, replaced by a market-access fund for affordable housing that would be paid for through a user fee.
There would also be steps taken to ensure community banks and credit unions would not be squeezed out by megabanks in competing for a share of the secondary mortgage market.
Corker said the Banking Committee is already working on legislation to overhaul the Federal Housing Administration, a government agency that insures housing loans by banks, and said it was a goal to move on Fannie-Freddie legislation by fall.
The Securities Industry and Financial Markets Association said, ‘‘The time to address the future of mortgage finance is overdue, and we agree with the fundamental premise that private capital must play a larger role.”