Posted On June 26, 2018
Last Thursday, the Trump Administration released a proposal asking Congress to revisit the privatization of Fannie Mae and Freddie Mac, the Government-Sponsored Enterprises (GSEs) that have been under conservatorship since 2008. The proposal recommends converting the GSEs into fully private entities but placing them under the regulatory oversight of another federal organization with experience in the secondary mortgage market.
From the statement, titled Reform Federal Role in Mortgage Finance:
“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.”
The longstanding question of what to do with Fannie Mae and Freddie Mac has dogged Congress for years since economic recovery. Last year, Senator Bob Corker (R-TN) and Senator Mark Warner (D-VA) proposed a bipartisan bill to both preserve Fannie and Freddie’s operations but open the market to competition. The bill died in the Senate, failing to win support from progressives. Despite Fannie and Freddie paying back the $187.5 billion government bailout and returning to profitability, some members of Congress maintain there are other issues at stake besides GSE privatization. Opponents of the bill explained that GSE privatization should not take place before an affordable-housing mandate.
Currently, Fannie Mae, Freddie Mac, and Ginnie Mae (Federal Housing Administration, Department of Veterans Affairs, and the Department of Agriculture) back approximately 70% of all mortgage loans originated. The Reform Federal Role in Mortgage Finance proposal explains, “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 Mortgage Bankers Association (MBA) has expressed support for the most recent proposal, after years of advocating for GSE reform. David H. Stevens, CMB, President and CEO of the MBA, said in a statement, “MBA applauds the Administration for releasing a proposal to reform Fannie Mae and Freddie Mac. […] MBA is heartened that the proposal recognizes that reform must be part of any plan before either Fannie Mae or Freddie Mac is released from conservatorship. As with any proposal of this size, the devil is in the details and MBA looks forward to working with the Administration, and Congress to finally tackle this long overdue issue.”
The proposal did not set a deadline for accomplishing privatization, but last September Treasury Secretary Steven Mnuchin said GSE reform would be a 2018 issue.