WASHINGTON (MarketWatch) — A group of Republican lawmakers on Tuesday introduced a package of bills to overhaul the troubled government-seized housing giants Fannie Mae and Freddie Mac, including a measure to force the administration to more quickly raise the fee the two firms charge for guaranteeing mortgage securities they sell to investors.

In addition, the group of lawmakers, all members of the House Financial Services Committee, introduced a bill that would limit the pay packages of executives and employees at the two firms, one that would eliminate their affordable housing goals and a provision to expedite an existing White House plan to reduce the size of their trillion-dollar-plus portfolio of mortgages.

The two companies became saddled with toxic mortgages and were nationalized at the peak of the financial crisis in 2008 to avoid losses and stem the credit contagion.

Regulatory observers say that some of the bills have a chance of being approved by the Democratic-controlled Senate while others have little or no chance. It is unclear whether the GOP lawmakers will try to advance the bills one at a time or as a package.

The committee will hold a hearing to examine the legislation on March 31, with a vote on the measures scheduled to take place in the committee on April 5.

Rep. Spencer Bachus, chairman of the panel, introduced a bill that would suspend pay packages for all employees at Fannie Mae and Freddie Mac and establish a compensation system that is comparable to other government employees. “Our strategy is the same as it has always been and that is to end government involvement in Fannie and Freddie,” said Bachus at a press conference.

Rep. Randy Neugebauer of Texas would direct Fannie and Freddie’s regulator, the Federal Housing Finance Agency, to phase in over two years an increase in the price the two firms charge for guaranteeing mortgage securities they sell to investors. The goal would be to stimulate the dormant private mortgage securities market.

The Obama administration, in a Treasury report last month, said it wants to increase the price of the guarantee fee to private market levels but it has yet to provide any details.

Observers believe that the White House doesn’t want to increase the fee until after it can see what happens to the market when another key law allowing the firms to buy mortgages with values as high as $729,750 expires in September. Many observers argue that an immediate increase of the fee could hurt the recovery.

However, Neugebauer insisted that raising the fee would spur the private market. “When people see that there is money to be made, that these are good investments, I believe the marketplace will come back in,” he said.

Scaled-back holdings

Rep. Jeb Hensarling introduced a provision that would speed up efforts to sell the portfolio holdings of Fannie and Freddie. Currently, Fannie and Freddie have roughly $1.4 trillion in mortgage-backed securities and loans on their books. The Texas congressman wants the portfolios reduced over five years to $250 billion each. The bill, if approved, would expedite an existing requirement that Fannie and Freddie reduce their portfolios by 10% a year.

Jaret Seiberg, analyst at MF Global Inc. in Washington said a speedy unwinding of the portfolios could add an extra $100 billion per year to the MBS market. “The issue is whether there is enough demand for the MBS. If there is not, it could drive up housing finance costs,” he said.

“ If the price gets cheap enough, I’ll buy them. ” — Rep. Jeb Hensarling (R-Tex.)

However, Hensarling refuted the notion that the markets couldn’t handle the portfolio reduction over five years.

“If the price gets cheap enough, I’ll buy them,” he told MarketWatch after a press conference. “I think the most unreasonable thing we can do is leave Fannie and Freddie as they are. They never should have had these retained portfolios in the first place and it never did anything to their housing mission. Five years is not an arbitrary number.”

Rep. Judy Biggert (R., Ill.) introduced a bill that would hike oversight over the firms by establishing an Inspector General within FHFA to oversee the companies. Seiberg said it was an idea that Democrats could embrace because “it’s hard to be against Inspector Generals.”

Another bill, introduced by Rep. David Schweikert, would prohibits Fannie and Freddie from engaging in new businesses.

“You would hate to wake up one morning and find out that [Fannie and Freddie] have decided to go and do car loan securitizations or credit cards or some other product,” Schweikert said. “We are trying to ensure that we structure the box that they operate within.”

GOP lawmakers at the press conference said they expect to introduce more bills seeking to reform Fannie and Freddie down the road. They declined to provide any details about these additional measures.

Fannie FNMA, -0.98% and Freddie FMCC, -1.54% have long been crucial to the housing market, guaranteeing or owning roughly 50% of the residential mortgage market. Including Federal Housing Administration loans, the government has been responsible for about 95% of mortgage origination between 2008 and 2010.

Senate side

Meanwhile, the housing industry in front of a Senate Banking Committee hearing on Tuesday urged a go-slow approach to winding down mortgage giants Fannie Mae and Freddie Mac.

“Some continuing and predictable government role is necessary to promote investor confidence and ensure liquidity and stability for homeownership and rental housing,” according to a statement of the common position of banks, realtors and mortgage brokers who are often at odds.

“Changes to the mortgage finance system must be done carefully and over a reasonable transition period to ensure that a reliable mortgage finance system is in place to function effectively in the years ahead,” the trade groups said.

No group has come forward with a long-term solution to replace the mortgage giants. The Treasury Department put forward a plan last month that suggested three options.

At the hearing, Mortgage Bankers Association chairman Michael Berman said the government should provide “an explicit, but limited, credit guarantee on a class of mortgage-backed securities backed by “core”, well-underwritten single-family and multifamily mortgage products.”

“This guarantee should not be free, but should be financed with risk-based fees to be deposited into an FDIC-type insurance fund,” Berman said.

Mark Zandi, the chief economist at Moody’s Analytics, and Janneke Ratcliffe, a senior fellow at the Center for American Progress, also backed a limited government role.

While Fannie and Freddie should be phased out, the government should provide “catastrophic insurance” to the sector, Zandi said. If the government also decides to provide subsidies to low-income households, the assistance must be explicit and on-balance-sheet, he said.

“In a fully privatized system, you’re not getting rid of risk – you still have catastrophic risk and at the end of the day, the government will step in,” Zandi said.

“It’s going to be very difficult for the government not to step in the save the system, and therefore it’s better to explicitly price for that service.”

But Arnold Kling, a former economist at Freddie Mac, warned the committee to eliminate government guarantees altogether.

“Any scheme to bring government back in as a player providing a guarantee is the financial equivalent of building a new nuclear power plant right on top of a fault line,” Kling said.

Kling said the secondary mortgage market might not survive the absence of a government guarantee.

“That would not be a disaster for the American people. We might go back to lending like when I was growing up where if you got a mortgage loan, the same bank that lent you the money held on to the mortgage until you finished making the payment,” Kling said.

Kling said the government would make money most of the time under catastrophic insurance program “like picking up nickels in front of a steam roller.”

“And then at some point that steam roller is going to get you,” he said.

Zandi said the 30-year mortgage product would disappear under a fully-privatized system.