This story appeared in Bank Digest.
In advance of the markup of legislation to reform the housing finance system, Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La) introduced nine amendments aimed at ending "Too Big to Fail" and preventing future bailouts. Under the Johnson-Crapo federal housing finance reform bill, a newly-created Federal Mortgage Insurance Corporation would allow private companies to serve as bond guarantors and insure losses on mortgage-backed securities. Under the current bill, these guarantors could be standalone insurance companies or could be affiliates of larger entities, but not insured depository institutions or contained within a bank holding company structure. Under the current bill, while the guarantors could not offer support to any affiliates, their affiliates could offer support to them--triggering the potential for an ultimate bailout from the Federal Reserve Board.
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