With the 10th anniversary of the federal conservatorship of Fannie Mae and Freddie Mac approaching, the Trump Administration has addressed the future of the government-sponsored enterprises (GSESs) by recommending spinning them into private companies.
As part of a 132-page proposal called “Reform Federal Role in Mortgage Finance
,” the Administration addressed the question of the conservatorship by offering a proposal that would “remove the federal charter from statute and fully privatize the GSEs.” The proposal called for a to-be-determined “federal entity with secondary mortgage market experience [that] would be charged with regulatory oversight of the fully privatized GSEs, have the authority to approve guarantors, and develop a regulatory environment that is conducive to developing competition amongst new private guarantors and the incumbent GSEs, ensuring they would all be adequately capitalized and competing on a level playing field.”
The proposal also stated that the regulator in charge of the privatized GSEs “would also ensure fair access to the secondary market for all market participants, including community financial institutions and small lenders.” The proposal also envisioned how “guarantors would have access to an explicit guarantee on the MBS that they issue that is only exposed in limited, exigent circumstances,” adding that “taxpayers would be protected by virtue of the capital requirements imposed on the guarantors, maintenance of responsible loan underwriting standards, and other protections deemed appropriate by their primary regulator.”
But the Administration’s vision for the GSEs did not include affordable housing. The privatized GSEs would, under the proposal, “focus on secondary market liquidity for mortgage loans to qualified borrowers, while HUD would assume 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. To effectuate this, the newly fully-privatized GSEs would have mandates focused on defining the appropriate lending markets served in order to level the playing field with the private sector and avoid unnecessary cross-subsidization. A separate fee on the outstanding volume of the MBS issued by guarantors would be used specifically for affordable housing purposes, and would be transferred through congressional appropriations to, and administered by, HUD.”
"MBA applauds the Administration for releasing a proposal to reform Fannie Mae and Freddie Mac which closely tracks much of the work that has been done to date by policymakers on Capitol Hill," said David H. Stevens, CMB, President and CEO of the Mortgage Bankers Association (MBA). Stevens and the MBA have been staunch supporters of Trump's GSE reform
. "It includes many core principles that MBA has long advocated for, such as an explicit government guarantee on MBS only as a catastrophic backstop, allowing for multiple guarantors and ensuring small lender access. MBA is heartened that the proposal recognizes that reform must be part of any plan before either Fannie Mae or Freddie Mac is released from conservatorship. As with any proposal of this size, the devil is in the details and MBA looks forward to working with the Administration, and Congress to finally tackle this long overdue issue."
Not all agreed the Administration's measure would be a true fix.
“A decade ago, excessive Wall Street greed and predatory lending led to a tsunami of unnecessary foreclosures that took away the homes of millions of hardworking families," said Nikitra Bailey, Executive Vice President at the Center for Responsible Lending
. "That experience should have served as a warning to this administration about the harmful costs of reckless deregulation letting greed go unchecked on all Americans. Unfortunately, the White House has not learned from history. This proposal is a bull in a china shop that threatens to harm our recovering economy and exacerbate our affordable housing crisis. Congress should reject this misguided plan.”
No timeline was offered by the Administration on when this proposal could be enacted, but the Administration did hold true to its promise, made by Treasury Secretary Steven Mnuchin
last September, that GSE reform was approximately a year away.