US Treasury expected to unveil Fannie, Freddie plan in coming days

September 4, 2019

WASHINGTON (Sept 4) - The Trump administration’s blueprint for reforming the U.S. housing system is expected to be unveiled in the coming days, according to Washington analysts, marking a key step towards overhauling mortgage giants Fannie Mae and Freddie Mac.

Fannie and Freddie have been in conservatorship since they were bailed out by the government during the 2008 financial crisis. Washington has since struggled to get them back on their feet, with a 2012 Obama-administration plan falling flat.

In March, the Trump administration said it would devise a new plan to free the mortgage companies from U.S. government control, which Reuters reported in July would come by this month.

On Tuesday, the U.S. Senate Banking Committee said it would hold a hearing Sept. 10 on the next steps for housing finance reform, in what analysts saw as a signal the report would likely come by Friday.

“Scheduling this hearing is a definitive signal that the release of the Trump administration’s mortgage reform plan is imminent,” Isaac Boltansky, director of policy research at Washington-based Compass Point Research & Trading wrote in a note on Wednesday.

He said the report and the hearing were, among other expected moves, “meaningful mile markers in the road to ending” Fannie and Freddie conservatorships.

A Treasury spokesman declined to comment.

The Treasury holds warrants representing 80% of Fannie and Freddie’s common stock, as well as senior preferred stock. Under the current terms of the preferred stock agreement, Treasury is guaranteed a 10% dividend and sweeps the firms’ quarterly net profits into its coffers. That arrangement has left Fannie and Freddie with just around $3 billion of capital each.

The report is expected to outline the conditions for safely removing Fannie and Freddie from their government lifeline, including both legislative and administrative proposals. It is likely to include a plan to set about rebuilding the firms’ capital buffers by, among other measures, ending the quarterly net profit sweep.

It is also expected to recommend the creation of an explicit guarantee for the pair’s securities, and to explore ways to streamline their businesses.

With Fannie and Freddie guaranteeing more than half the nation’s mortgages, any plan is likely to be closely scrutinized by Democrats and consumer groups who may be concerned an overhaul would push up mortgage rates and housing costs.

In recent months, the administration has also tempered expectations for a speedy overhaul of Fannie and Freddie, with Mark Calabria, director of the Federal Housing Finance Agency which controls the two mortgage giants, telling Reuters in July he hoped the pair would be ready to exit conservatorship within five years.

Treasury Secretary Steven Mnuchin, who has led the push for reforming Fannie and Freddie within the administration, is “juggling a number of balls,” Calabria said at the time, including the ongoing trade dispute with China and debt ceiling negotiations with Congress.


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