The Trump administration has proposed ending the government’s long conservatorship of mortgage financing giants Fannie Mae and Freddie Mac, which was among a sweeping proposal for reorganizing the government unveiled Thursday. Under the proposal, which still requires congressional approval, Fannie Mae and Freddie Mac would be converted to “fully private entities.”
Fannie Mae and Freddie Mac have been under U.S. conservatorship since 2008. “Although the federal role in the housing market has helped to facilitate the availability of the 30-year fixed-rate mortgage, the current system has structural flaws that have also created distortions in home pricing that may actually hinder the goal of homeownership,” the administration’s proposal states.
Under the proposal, the GSEs would focus more on “qualified borrowers,” while the Department of Housing and Urban Development would take primary responsibility of programs to assist low- and moderate-income buyers. Fannie and Freddie don’t issue mortgage loans, but they do back them by lenders and bundle them into securities, guaranteeing them to investors.
The administration argues that the GSEs play an outsized role in the nation’s mortgage finance system that impedes competition in the marketplace. They argue that privatizing Fannie and Freddie would lead to greater competition in the private sector and could bring about lower prices.
However, some housing experts argue that mortgage rates could rise if the GSEs are privatized, fearing there will be fewer programs available to help lower-income borrowers become homeowners as a result. The administration’s privatization proposal is still too vague for others to fully know how it would impact the housing market. “It is critical to America’s housing industry and a priority of NAR that affordable mortgage capital always remains available for creditworthy Americans, particularly during economic downturns—a vital role that a fully private entity could not fill,” Elizabeth Mendenhall, president of the National Association of REALTORS®, said in a statement. “This makes efforts to reform the secondary mortgage market all the more necessary. NAR will continue to advocate that Congress enact comprehensive housing finance reforms as quickly as possible.”
The administration’s proposal states: “This proposal would transform the way the federal government delivers support for the U.S. housing finance system to ensure more transparency and accountability to taxpayers, and to minimize the risk of taxpayer-funded bailouts, while maintaining responsible and sustainable support for homeowners."
Proposed changes, which would require broader policy and legislative reforms beyond restructuring federal agencies and programs, including ending the conservatorship of Fannie Mae and Freddie Mac, reducing their role in the housing market, and providing an explicit, limited federal backstop that is on budget and apart from the federal support for low- and moderate-income home buyers.
Seventy percent of all mortgages originated in 2017 were backed by Fannie, Freddie, and Ginnie Mae (loans guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture).The administration’s proposal also called for combining the labor and education departments, restructuring the post office, and creating the Bureau of Economic Growth.
Source:
“End of Conservatorship? Trump Administration Proposes Privatizing Fannie Mae, Freddie Mac,” HousingWire (June 21, 2018) and “What Trump’s Proposed Government Overhauls Means for Home Buyers,” realtor.com® (June 21, 2018)
