AP

Treasury unveils plan to privatize Fannie Mae, Freddie Mac

Sep 6, 2019, 5:24 AM | Updated: Aug 30, 2022, 3:34 pm

FILE - This Monday, Aug. 8, 2011, file photo shows the Fannie Mae headquarters in Washington. The T...

FILE - This Monday, Aug. 8, 2011, file photo shows the Fannie Mae headquarters in Washington. The Trump administration has unveiled its plan for ending government control of Fannie Mae and Freddie Mac, those are the two giant mortgage finance companies that nearly collapsed in the financial crisis 11 years ago and were bailed out by taxpayers at a total cost of $187 billion, Thursday, Sept. 5, 2019. (AP Photo/Manuel Balce Ceneta, File)

(AP Photo/Manuel Balce Ceneta, File)

WASHINGTON (AP) — The Trump administration has unveiled its plan for ending government control of Fannie Mae and Freddie Mac, the two giant mortgage finance companies that nearly collapsed in the financial crisis 11 years ago and were bailed out at a total cost to taxpayers of $187 billion.

The administration’s plan calls for returning Fannie and Freddie to private ownership and reducing risk to taxpayers. That while preserving homebuyers’ access to 30-year, fixed-rate mortgages, a pillar of housing finance. The Treasury Department published the plan Thursday and submitted it to President Donald Trump, who called for it in March.

While not prominently in the public eye, the two companies perform a critical role in the housing market. Together they guarantee roughly half of the $10 trillion U.S. home loan market.

Fannie and Freddie, operating under so-called government conservatorships, have become profitable again in the years since the 2008 rescue and have repaid their bailouts in full to the Treasury.

The administration initially looked to Congress for legislation to overhaul the housing finance system and return the companies to private shareholders. But Congress hasn’t acted, and now officials say they will take administrative action for the core change, ending the Fannie and Freddie conservatorships.

The new plan would make the companies privately owned yet government “sponsored” companies again. Their profits would no longer go to the Treasury but would be used to build up their capital bases as a cushion against possible future losses.

___

WHAT ARE FANNIE MAE AND FREDDIE MAC AND WHAT DO THEY DO?

Before the Great Depression of the 1930s, financing for mortgages was mainly provided by life insurance companies, banks and thrifts, with little government support. Fannie was created in 1938 to buy loans issued by the Federal Housing Administration. Freddie was established in 1989.

They are called government-sponsored enterprises. Before they were taken over in 2008, they were private companies but still enjoyed an implicit guarantee that the government would step in and rescue them if they failed. That’s what happened after the collapse of the housing market and the wave of mortgage defaults.

The companies don’t make home loans. They buy them from banks and other lenders, and bundle them into securities, guarantee them against default and sell them to investors. Because the companies are under government control, investors are eager to snap up the “safe” securities.

And because Fannie and Freddie stand behind nearly half of U.S. home loans, they’re important to homeowners and potential buyers though people may not see their footprint.

___

WHY DOES THE TRUMP ADMINISTRATION WANT TO END GOVERNMENT CONTROL?

Administration officials say the government should have only a limited role in housing finance, and that the current system leaves taxpayers exposed to potential bailouts again. Some lawmakers, both Republicans and Democrats, agree with that view.

Senior Treasury officials told reporters Thursday that the government’s far-reaching power in this area means the Federal Housing Finance Agency can determine who gets a home mortgage, the price and terms of the loan, how it is made and then serviced and what happens if a borrower defaults.

The administration’s proposed overhaul of housing finance “will protect taxpayers and help Americans who want to buy a home,” Treasury Secretary Steven Mnuchin said in a statement. “An effective and efficient federal housing finance system will also meaningfully contribute to the continued economic growth under this administration.”

___

WHAT IS THE ADMINISTRATION PROPOSING?

There are nitty-gritty details of housing finance in the plan, but the central change is ending the conservatorships. Officials haven’t given a timeline for the administrative action.

Mark Calabria, the director of the FHFA, indicated recently that it wouldn’t be any time soon, and likely after 2020. Some conditions will have to be met for the companies to be “ready to exit,” he said. They include ensuring the companies have sufficient capital to operate, and to continue on their own in the event of a severe economic downturn.

Other changes outlined in the plan would have to be approved by Congress. They include replacing Fannie and Freddie’s affordable housing goals with more “tailored support” for first-time homebuyers and low- and moderate-income borrowers.

___

ARE THERE CONCERNS WITH THE NEW APPROACH?

Some critics have expressed concern that the new capital requirements for the companies could cause them to increase their fees for guaranteeing mortgages, potentially raising borrowing costs for homebuyers.

Sen. Sherrod Brown of Ohio, the senior Democrat on the Senate Banking Committee, called the new plan “another industry giveaway that would destabilize the economy … and limit access to mortgages for working people across the country.”

“President Trump’s housing plan will make mortgages more expensive and harder to get,” Brown said in a statement.

Administration officials acknowledge it’s hard to predict what the impact on borrowing costs would be. But they maintain that by removing government restrictions, the plan would likely expand the supply of mortgages and possibly lower costs.

__

This story has been corrected to show the name of the agency is the Federal Housing Finance Agency.

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

Today’s Top Stories

AP

close up of a peleton bike pictured, a recall has been issued for some...

Associated Press

Peloton recalling more than 2M exercise bikes because the seat post assembly can break during use

The recall includes approximately 2.2 million of the Peloton Bikes Model PL01. The bikes were sold from January 2018 through May 2023 for about $1,400.

11 months ago

Immigration Asylum Family Reunification Explainer....

JULIE WATSON Associated Press

US will let in at least 100,000 Latin Americans to reunite with families

President Joe Biden's administration has promised to offer more legal options for Latin American migrants to come to the United States to be reunited with their families.

11 months ago

two border patrol agents pictured, agents are dealing with a surge as title 42 reaches its expirati...

Associated Press

Title 42 has ended. Here’s what it did, and how US immigration policy is changing

The end of Title 42's use has raised questions about what will happen with migration preparing for an increase in migrants.

11 months ago

Rumman Chowdhury is pictured, she is the coordinator for the mass AI hacking exercise...

Associated Press

Hackers aim to find flaws in AI – with White House help

No sooner did ChatGPT get unleashed than hackers started “jailbreaking” the artificial intelligence chatbot – trying to override its safeguards so it could blurt out something unhinged or obscene. But now its maker, OpenAI, and other major AI providers such as Google and Microsoft, are coordinating with the Biden administration to let thousands of hackers […]

11 months ago

Parents of Ema Kobiljski, 13, mourn during the funeral procession at the central cemetery in Belgra...

JOVANA GEC Associated Press

Burials held in Serbia for some victims of mass shootings

Funerals are taking place in Serbia for some of the victims of two mass shootings that happened in just two days, leaving 17 people dead and 21 wounded, many of them children.

11 months ago

interest rate...

DAVID McHUGH AP Business Writer

Europe’s inflation inches up ahead of interest rate decision

Europe's painful inflation has inched higher, extending the squeeze on households and keeping pressure on the European Central Bank to unleash what could be another large interest rate increase.

11 months ago

Sponsored Articles

close up of rose marvel saliva blooms in purple...

Shannon Cavalero

Drought Tolerant Perennials for Utah

The best drought tolerant plants for Utah can handle high elevations, alkaline soils, excessive exposure to wind, and use of secondary water.

Group of cheerful team members high fiving each other...

Visit Bear Lake

How To Plan a Business Retreat in Bear Lake This Spring

Are you wondering how to plan a business retreat this spring? Read our sample itinerary to plan a team getaway to Bear Lake.

Cheerful young woman writing an assignment while sitting at desk between two classmates during clas...

BYU EMBA at the Marriott School of Business

Hear it Firsthand: 6 Students Share Their Executive MBA Experience at BYU’s Marriott School of Business

The Executive MBA program at BYU offers great opportunities. Hear experiences straight from students enrolled in the program.

Skier being towed by a rider on a horse. Skijoring....

Bear Lake Convention and Visitors Bureau

Looking for a New Winter Activity? Try Skijoring in Bear Lake

Skijoring is when someone on skis is pulled by a horse, dog, animal, or motor vehicle. The driver leads the skiers through an obstacle course over jumps, hoops, and gates.

Banner with Cervical Cancer Awareness Realistic Ribbon...

Intermountain Health

Five Common Causes of Cervical Cancer – and What You Can Do to Lower Your Risk

January is National Cervical Cancer Awareness month and cancer experts at Intermountain Health are working to educate women about cervical cancer.

Kid holding a cisco fish at winterfest...

Bear Lake Convention and Visitors Bureau

Get Ready for Fun at the 2023 Bear Lake Monster Winterfest

The Bear Lake Monster Winterfest is an annual weekend event jam-packed full of fun activities the whole family can enjoy.

Treasury unveils plan to privatize Fannie Mae, Freddie Mac