Johnny Isakson
U.S. Sen. Johnny Isakson, R-Ga. U.S. Senate

U.S. Sen. Johnny Isakson, R-Ga., introduced on Thursday a bill to wind down Fannie Mae and Freddie Mac and create a transitional mortgage program to be sold to the private sector after 10 years.

Isakson, a former real estate agent, proposed The Mortgage Finance Act of 2011, which would place the two mortgage giants into receivership no later than 18 months after passage of the bill. The receiver of the entities would seek to repay the entities' taxpayer bailout, which has cost over $150 billion, with continued losses expected.

A new entity, the Mortgage Finance Agency, would guarantee high-quality residential mortgages, essentially replacing Fannie and Freddie's role in the market. Mortgages with as low as 5 percent down payments would qualify, as long as the underwriting was solid, according to the bill.

The agency would charge guarantee fees to cover mortgage-backed securities, but the same fee amount would be charged for all lenders. Those fees would go to a fund to cover losses and eventually purchase insurance to cover losses from extreme, unpredictable market downturns.

After 10 years, the agency would be sold to the private sector and proceeds from the sale would repay taxpayers for any portion of the Fannie and Freddie bailout that was unpaid, with any surplus go to fund the national debt.

This legislation is a detailed roadmap to change the unsustainable course we’re on in which the American taxpayers have been bailing out the mortgage industry to the tune of hundreds of billions of dollars. My bill will shut down Fannie Mae and Freddie Mac through an orderly transition, and it will repay the taxpayers,” said Isakson in a statement. “I invite my colleagues in Congress, both Democrat and Republican, to move this bill forward to strengthen our nation’s housing finance system and our nation’s economy.

The National Association of Realtors (NAR), an industry group, said it supported the bill because it provides sensible reform of the secondary mortgage market and protects the interest of taxpayers.

Any new secondary mortgage market model must ensure that mortgages are affordable and always available to creditworthy buyers, especially in times of economic distress; ensure that taxpayer dollars are protected; require sound underwriting standards; and provide for rigorous oversight. We think this legislation creates the framework to accomplish that, said Moe Veissi, president of the NAR, in a statement.

However, the plan may receive opposition from Senate Democrats, who appear committed to Fannie and Freddie. As The Wall Street Journal reported, Democrats are seeking to increase the fees that the agencies charge lenders to guarantee loans to raise $38 billion for the U.S. Treasury.

Some Republicans, including Isakson, and the NAR oppose the measure. But an Obama administration official told The Journal that the proposed increase is consistent with the goal of winding down Fannie and Freddie and attracting private capital back into the housing market.