Fannie Mae, Freddie Mac: Johnson-Crapo First Loss Provision Analysis

As legislators evaluate the Johnson-Crapo proposal to reform Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), one of the main questions they will need to answer is whether it adequately protects taxpayers from having to bail out the mortgage markets in the event of another deep recession. The proposal would create a new federal agency, the Federal Mortgage Insurance Corporation (FMIC), partly modeled on the FDIC, to provide explicit guarantees for the securitized mortgages, but it also has a 10% first loss layer of protection. 10% is higher…