The U.S Department of Treasury has released its long-awaited plan to reform the national housing system and privatize Fannie Mae and Freddie Mac. The Treasury Housing Reform Plan aims to bring the mortgage buyers out of government conservatorship—both were bailed out by the government 11 years ago in the wake of the 2008 financial crisis. Fannie and Freddie suffered significant losses and subsequently received more than $190 billion from the government.
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Following President Donald Trump’s Presidential Memorandum earlier in March, the Treasury consulted with the Federal Housing Finance Agency, Fannie and Freddie’s regulator, as well as other government agencies and several stakeholders including affordable housing advocates, investors, mortgage lenders, servicers and insurers, broker-dealers, think tanks and trade associations. The Treasury deems the plan the last unfinished business of the financial crisis.
In a 53-page text, the Trump Administration lays out a series of recommended legislative and administrative proposals along broadly defined lines, emphasizing that the changes are intended to protect American taxpayers against future bailouts, help them in securing homeownership and preserving the 30-year fixed-rate mortgage, according to U.S. Treasury Secretary Steven Mnuchin.
The strategy, which primarily aims to reduce the government’s role in the mortgage market, includes recommendations for simplifying the Qualified Mortgage rule and eliminating the QM patch—which allows government-sponsored enterprises to bypass certain regulations—and promotes private-sector competition by opening up the market to private players. The changes won’t affect current mortgages and, while the government’s role will diminish significantly, it wouldn’t fade completely. In the event of an emergency, the government would provide a line of credit to the GSEs.
On Thursday, Fannie Mae said it is still in the process of assessing the plan. “We are reviewing today’s announcement. We appreciate the Administration putting forward a housing finance reform plan. As always, we are committed to being as helpful as possible to policymakers as they consider the future of the GSEs and housing finance. We remain focused on providing market liquidity, serving our customers and addressing America’s housing needs,” a Fannie Mae spokesperson told Multi-Housing News.
Although a plan to release Fannie Mae and Freddie Mac from conservatorship has been debated ever since the companies were taken under direct government control back in 2008, no concrete program has materialized until now. While many of the recommendations are legislative and require Congressional approval, most of the proposals don’t need input from Congress.
According to the plan, “(…), each GSE should remain in conservatorship until FHFA determines that that particular GSE can operate safely and soundly and without posing an undue systemic risk.” The strategy doesn’t address the topic of the government’s stake in the companies and what would happen to it once the plan is implemented.