WASHINGTON–After years of discussion, the Trump Administration has released its plans for reforming the housing finance system, including a proposal to overhaul Fannie Mae and Freddie Mac, which have been operating under federal conservatorship for more than a decade.
The administration called addressing the issue “the last unfinished business of the financial crisis.”
The 53-page Treasury Housing Reform Plan seeks to end those conservatorship, and while Treasury said it prefers Congress act on legislation, it “ should not and need not wait on Congress” and instead will see to recapitalize the government-sponsored enterprises (GSEs).
To start the recapitalization, the administration is recommending and adjustment to but not an end to what’s known as the “net worth sweep” under which each GSE is permitted a $3 billion capital cushion.
Many Details Remain
A senior Treasury official told Fox Business the department is considering raising the amount of earnings Fannie and Freddie can retain, but details regarding specific amounts and timing would need to be worked out by the Federal Housing Finance Agency (FHFA) and the Treasury.
“While the plan does not specifically address an initial public offering, Treasury officials told reporters that it does direct the Treasury and the FHFA together to develop a recapitalization plan that would potentially contemplate issuing additional public stock in a public market,” Fox Business reported.
The plan calls for the government to continue to support the GSEs after the conservatorships, but additional details were lacking.
NAFCU Responds
Following release of the plan, NAFCU CEO Dan Berger issued a statement saying, “"We appreciate the Trump Administration's commitment to reforming our housing finance system by working to promote competition and putting an end to taxpayer bailouts. Moving forward, NAFCU will continue to work with the administration, Treasury and Congress to ensure guaranteed access to the secondary mortgage market for lenders of all sizes, loan pricing at the GSEs that is based on quality not quantity, and the establishment of an explicit government guarantee at the GSEs to provide certainty in the marketplace."
Other Recommendations
Among the recommendations made as part of the plan are "simplifying" the Qualified Mortgage rule and eliminating the so-called QM patch that allows Fannie and Freddie to sidestep some regulations; reducing "unnecessary regulatory impediments" for private-label securitization, and promoting private-sector competition, noted HousingWire.
Treasury said other goals of the plan are protecting American taxpayers against future bailouts, preserving the 30-year fixed mortgage and helping Americans make home purchases.
As CUToday.info reported earlier, during his confirmation hearing, then Federal Housing Finance Agency (FHFA) director-nominee Mark Calabria was grilled at length by members of Congress wanting to know his plans for the GSEs.
Privatization? No Time Soon
Despite the new plan, analysts are saying any privatization of Fannie and Freddie are a long way off. The two companies were placed into conservatorship during the financial crisis and required nearly $200 billion in federal support to weather that storm. Since that time profits from both companies have gone to the U.S. Treasury and the government has recovered all funds invested.
Earlier this year Calabria told Fox Business he’s considering an IPO of Fannie and Freddie as early as the first half of 2020 in order to raise capital.