President Trump recently announced a plan to overhaul multiple parts of the government. Included in this proposal: a section dedicated to “Reform Federal Role in Mortgage Finance.”
The Trump administration thinks that Fannie Mae and Freddie Mac carry too much weight in the mortgage industry, and consequently inhibit competition. The proposal aims to end conservatorship and privatize the two GSEs. If Fannie and Freddie are privatized, they would be subject to the FHFA’s new plan for risk-based and minimum leverage capital requirements.
- The Trump administration believes Fannie Mae and Freddie Mac inhibit competition in the mortgage finance system
- The administration aims to end conservatorship and private Fannie and Freddie
- If they GSEs exit conservatorship, they would be subject to the FHFA’s new capital requirements
The Trump administration on Thursday proposed a massive, sweeping overhaul of the federal government.
And while most headlines seem to focus on the administration’s proposal to combine the Department of Education and the Department of Labor, the privatization of the U.S. Postal Service, and other changes, included among the proposal is a plan to would radically reshape the country’s housing finance system.
In a section of the 132-page document entitled “Reform Federal Role in Mortgage Finance,” the Trump administration proposes ending the conservatorship of Fannie and Freddie and privatizing the GSEs.
According to the administration, the GSEs play an outsized role in the country’s mortgage finance system and stand in the way of competition in the market.
“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 proposal states in a summary section.
“Proposed changes, which would require broader policy and legislative reforms beyond restructuring Federal agencies and programs, include 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 homebuyers,” the proposal continues.
Under the Trump administration proposal, Fannie and Freddie would be converted to “fully private entities.”
It appears that the plan is part of a move to increase private market competition in the mortgage finance system.
The proposal states that loans backed by Fannie, Freddie and Ginnie Mae (loans guaranteed by the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture) made up approximately 70% of all mortgages originated in 2017.
The prevalence of those agencies in the market is a double-edged sword, according to the Trump administration.
“All these entities, taken as a whole, form a complex and overlapping network of cross-subsidization, without clear accountability as to who is paying for, and who is receiving, housing subsidies,” the proposal states. “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.”
As part of the plan, the GSEs mission would also shift away from lending to low- and moderate-income borrowers. Instead, the GSEs would focus only on “qualified borrowers,” while HUD would take over “primary responsibility for affordable housing objectives by providing support to low- and moderate-income families that cannot be fulfilled through traditional underwriting and other housing assistance grants and subsidies.”
View the original article at Housing Wire