Trump’s Fannie-Freddie Plan Finds GOP Favor and Democratic Scorn

NEW YORK (Capital Markets in Africa) – The top Republican and Democrat on the Senate Banking Committee split over the Trump administration’s plan for freeing Fannie Maeand Freddie Mac from federal control, a sign of the uphill battle Congress faces in overhauling the mortgage giants.

Idaho Republican Senator Mike Crapo, the banking panel’s chairman, said his preference is for lawmakers to take the lead on freeing the companies from federal control, but added that the administration should get going on reform. Senator Sherrod Brown, the committee’s top Democrat, labeled the plan a non-starter that will make housing more expensive.

The remarks, made at a Tuesday hearing, are the latest sign that a bipartisan compromise isn’t likely anytime soon. That might embolden the administration to pursue its own changes, including steps to bolster Fannie and Freddie’scapital and reduce the companies’ dominance over the mortgage market.

Crapo encouraged such moves, arguing that they might actually make it easier for lawmakers to ultimately fix Fannie and Freddie, which backstop about half the nation’s $10 trillion of home loans. The companies have been wards of the state since the 2008 financial crisis, when the housing-market crash triggered the government takeover. Lawmakers have repeatedly failed to agree on what to do with Fannie and Freddie.

Trump’s Friends
“Only Congress has the tools necessary to provide holistic, comprehensive reform to our system that will be durable through any market cycle,” Crapo said. “However, it is important for the administration to begin moving forward with incremental steps that move the system in the right direction.”

Ohio’s Brown countered that the Treasury Department’s plan, released Sept. 5, would be a gift to President Donald Trump’s friends on Wall Street, and would be disastrous for U.S. home buyers.

“The Trump plan will make mortgages more expensive and harder to get,” he said. It will also make it “easier for Wall Street to profit off of hard working families.”

Treasury Secretary Steven Mnuchin, who defended his agency’s proposal at Tuesday’s hearing, said he remains eager for Congress to take the lead on Fannie and Freddie.

But he added that he and the Federal Housing Finance Agency, the companies’ regulator, are already negotiating changes. Mnuchin said next steps would include “removing” what’s known as the net worth sweep, a controversial policy implemented during the Obama administration that requires Fannie and Freddie to send nearly all their profits to the Treasury. Ending the sweep will allow the companies to retain earnings and build up their capital buffers.

Taxpayer Rescue
FHFA Director Mark Calabria and Housing and Urban Development Secretary Ben Carson also testified at Tuesday hearing. They agreed with Mnuchin that they prefer Congress revamp the nation’s housing-finance system.

Fannie and Freddie don’t make loans. Instead, they purchase mortgages from banks and other lenders and package them into bonds. Those securities have guarantees that protect bond holders from the risk of homeowners defaulting. The process provides ample liquidity for the mortgage market, keeping the housing sector humming and borrowing rates low.

The companies were taken over more than a decade ago, ultimately receiving $191 billion in bailout funds. They’ve since become profitable again, paying more than $300 billion in dividends to the Treasury in recent years.

Source: Bloomberg Business News