WASHINGTON, DC-Three Republicans, including Sen. John McCain (R-AZ), are planning to introduce an amendment to the financial reform bill that would require the government to end the conservatorship of Fannie Mae and Freddie Mac two years after the bill becomes law, according to the Wall Street Journal. Three years after the conservatorship ends, the government charter would expire. Finally, at that point, the amendment would give the companies 10 years to operate under a special holding company. It is during this time period that they will have to dissolve remaining mortgages or debt obligations that they acquired or held in their incarnation as a GSE.

Other provisions of the amendment, according to the article, include requirements that the companies mortgage assets decline, capital standards rise and the size of the loans they purchase shrink as they leave conservatorship. Such a proposal, of course, has been made before in various forms and from various sources. Last year the General Accountability Office released a report evaluating the various paths that Fannie and Freddie could take to regain financial health--including a privatization path.

Indeed, the administration had originally planned to propose a plan to restructure Fannie and Freddie in February, Sam Chandan, global chief economist and EVP of Real Capital Analytics, tells GlobeSt.com. "The postponement of a formal plan has prolonged the uncertainty about the long-term structure of the residential finance system in the United States. It also extends uncertainties about the ultimate fate of the GSEs' multifamily finance roles." Now the issue is rearing its head as part of the debate of the larger the finance reform bill, he says. "With the Treasury Department investing billions of public dollars each quarter to ensure the net asset value positions of Fannie and Freddie, it is understandable that many constituencies have grown frustrated and want to see the issue addressed now and conclusively."

From an economic perspective, there is merit in many of the Republican proposal's conceptual underpinnings, Chandan says. "For example, guarantees are less efficient than a clearly-defined and priced insurance mechanism. Guarantees also facilitate moral hazards and the potential for excessive risk-taking. On a more fundamental level, it is entirely unclear if there is a long-term role for government--either directly or indirectly--in broadly subsidizing the cost of mortgage credit in the modern US economy, distorting private market outcomes."

That said, he continues, "if you believe that these questions deserve to be evaluated carefully and rationally and with gravitas, you should be skeptical of their being addressed as one more amendment in an act that has already swelled to 1,400 pages."