Bill Proposes Mortgage Shake-Up .

Two lawmakers, a California Republican and a Michigan Democrat, are set to unveil legislation Thursday to replace mortgage giants Fannie Mae and Freddie Mac with at least five private companies that would issue mortgage-backed securities with explicit federal guarantees. The measure is a compromise between conservative Republicans who have advanced bills to build a mostly private mortgage-finance system and Democrats, who say the government shouldn't abandon the mortgage market. Fannie and Freddie were taken over by the government in 2008 as rising mortgage losses wiped out thin capital cushions. Taxpayers are on the hook for $138 billion to keep the companies afloat and stabilize mortgage markets. Amid an uneven housing recovery, lawmakers have largely shied away from fashioning a successor to the failed mortgage giants. Analysts say that the compromise proposed by Rep. John Campbell (R., Calif.) and Rep. Gary Peters (D., Mich.) may be the only plan likely to attract sufficient support from both parties on a politically explosive subject, particularly at a time when gridlock looms over issues such as how to curb federal spending. Other policy makers, including Treasury Secretary Timothy Geithner, have publicly discussed the merits of a limited but explicit government guarantee of securities backed by certain types of mortgages. Rep. Campbell said, "Rather than putting out a political marker, we can move a piece of legislation that is significant...and can actually become law. The only other approach that's out there in a bill is one that replaces Fannie and Freddie with nothing."

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