The bill, to be offered by Senators Bob Corker, a Republican from Tennessee, and Mark Warner, a Democrat from Virginia, reflects a prevailing view among lawmakers that the two government-sponsored enterprises should cease to exist while some government role to back mortgage lending should remain. The senators scheduled a news conference for 2:15 p.m. tomorrow to introduce the legislation.

“There is a bipartisan effort here that’s thoughtful and it is without question the most thorough Congressional effort to draft a GSE reform legislation to date,” David Stevens, president of the Mortgage Bankers Association, said in an interview.

According to a draft copy of the revised 154-page bill, the senators have reduced the losses that lenders would take on bad mortgages during a financial crisis.

The legislation could restart a stalled debate over the future of the mortgage-finance system. Congress has yet to propose a measure to replace Fannie Mae and Freddie Mac, which were placed into conservatorship as they neared bankruptcy during the 2008 financial crisis. The Obama administration also has not provided a plan for revamping the government’s role in housing finance.

“It’s an uphill fight for this legislation but the window is more open now than it has been at any point since the crisis,” said Jaret Seiberg, an analyst at Guggenheim Securities LLC’s Washington Research Group. “There seems to be a growing desire on both sides of the Hill to do something.”

Five Years

According to the latest draft of the bill, Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac would be liquidated within five years. The two companies package mortgages into securities on which they guarantee 100 percent payment of principal and interest on underlying mortgages.

The draft bill would require private financiers to take a loss of 10 percent of the principal underlying securities. Housing finance participants who have seen the draft have been critical of that “first-loss” provision, as it is referred to in the draft, saying it is too big a change from the current system.

Fannie Mae and Freddie Mac would be replaced by a Federal Mortgage Insurance Corp. to continue existing efforts to build a common securitization platform able to help small lenders issue securities. It also would continue Fannie and Freddie’s existing multifamily guarantees.

Crisis Provision

The new corporation would be allowed to cover a greater share of the losses in an “unusual and exigent circumstance” that threatens the mortgage credit availability and the housing finance system, according to the draft. Such assistance would be limited to six months once every three years.

That provision “gives investors more comfort than under the prior version of the bill where they might have been more skittish,” Clifford Rossi, a former risk manager and managing director at Citigroup Inc. who’s now at the University of Maryland’s Robert H. Smith School of Business.

The draft measure also would exempt the securities covered by the new entity from the so-called qualified residential mortgage rules, which six banking regulators including the Federal Deposit Insurance Corp. and the Federal Reserve are trying to complete this year.

Retaining Risk

The rule would require banks to hold a slice of mortgage backed securities that they currently sell to investors. The banks complained in 2011 when regulators released a preliminary draft of the rule requiring lenders to keep a stake in mortgages with down payments of less than 20 percent and in those issued to borrowers spending more than 36 percent of their income on debt.

Fannie Mae and Freddie Mac have begun posting record profits after drawing a total of $187.5 billion in aid from taxpayers to stay afloat since 2008. Heartened by the change of fortune, hedge funds including Paulson & Co. Inc. and Claren Road Asset Management LLC have been buying shares of the companies’ junior preferred stock and urging lawmakers to drop plans for abolishing them.

In 2011, the Treasury Department released a discussion draft with three options for restructuring the housing market. The administration has yet to send a detailed plan or preference to lawmakers.

Other Bills

Senator Jack Reed, a Democrat from Rhode Island, is also working on a bill to recast housing finance. Senate Banking Committee Chairman Tim Johnson, a Democrat from South Dakota, and Mike Crapo, a Republican from Idaho, have said they prefer to work on legislation to revamp the Federal Housing Administration prior to a Fannie and Freddie bill.

House Financial Services Chairman Jeb Hensarling, a Republican from Texas, is finalizing a broad housing finance bill that would include changes to FHA and a replacement for Fannie Mae and Freddie Mac. Hensarling prefers a privatized system without a government backstop. His bill could be introduced before lawmakers leave for their summer recess in August. Any final law is expected to take at least several years to pass.

“That approach in Corker-Warner is going to be the approach that eventually becomes law,” Seiberg said. “The battle is going to be how do get there, how do you structure it and what do you do with Fannie and Freddie. And those are really big decisions that are likely to take longer than this Congress to resolve.”

The bill’s cosponsors include senators Mike Johanns, a Nebraska Republican; Jon Tester, a Montana Democrat; Dean Heller, a Nevada Republican; Heidi Heitkamp, a North Dakota Democrat; Jerry Moran, a Kansas Republican; and Kay Hagan, a North Carolina Democrat.