By Jim Puzzanghera

Los Angeles Times

WASHINGTON — Congressional efforts to shut down bailed-out Fannie Mae and Freddie Mac took a significant step forward Tuesday as key senators announced bipartisan agreement on a plan to overhaul the housing finance system.

The proposal, which will be detailed in the coming days, would slowly shrink the government-controlled companies and replace them with a scaled-back government guarantee for mortgages.

Fannie Mae and Freddie Mac were seized by the federal government in 2008 as they neared bankruptcy from bad loans they guaranteed during the subprime housing boom.

Senate Banking Committee Chairman Tim Johnson, D-S.D., and the panel’s top Republican, Mike Crapo of Idaho, said they had reached agreement after a series of hearings last year on how to overhaul the complex housing system and reduce the role of the federal government in backing home loans.

Since the 2008 financial crisis, Fannie, Freddie and the Federal Housing Administration have backed about 90 percent of all new mortgages.

“There is near-unanimous agreement that our current housing finance system is not sustainable in the long term and reform is necessary to help strengthen and stabilize the economy,” Johnson said as he and Crapo released the principles they had agreed should be part of legislation.

While there is strong bipartisan agreement that Fannie and Freddie should be shut down and the housing finance system overhauled, Democrats and Republicans remain at odds about how exactly to do it.

The proposal from Johnson and Crapo builds on bipartisan legislation unveiled last year by Sens. Mark Warner, D-Va., and Bob Corker, R-Tenn.

That bill, which has five Democratic and five Republican co-sponsors on the banking committee, would try to reduce future risk to taxpayers from a housing downturn by requiring banks and other private firms that package mortgages into securities to hold at least 10 cents in capital for every dollar of the underlying loans to cover the first wave of losses.