The following article was written by Aidan Camas and originally published on September 27, 2019 by Worldwide ERC. View the original article.
The U.S. Department of the Treasury has proposed to move Fannie Mae and Freddie Mac toward privatization, but with a federal loan guaranty.
The U.S. Department of the Treasury has released its new Housing Reform Plan, which aims to re-privatize mortgage giants Fannie Mae and Freddie Mac. Earlier this year, President Donald Trump instructed the Treasury Department to draft a plan that would end the federal government’s conservatorship over Fannie and Freddie, which began as part of a federal government bailout in response to the 2008 financial crisis. In the years following the financial crisis, the federal government has struggled to agree upon a plan that addresses the future of these institutions. As part of the federal government’s conservatorship, all profit made by the mortgage giants is being “swept” into the Treasury Department’s account. It is estimated that Fannie and Freddie have now paid the federal government billions of dollars more than they were given as a bailout. The profitability of Fannie and Freddie for the government is another reason Congress has had little incentive to make changes to the current relationship. Treasury’s new 50-point plan outlines how the Trump Administration would like to see Fannie and Freddie recapitalized but getting this accomplished will require the help of both Congress and the Federal Housing Finance Agency (FHFA), something that will be a major undertaking.
How this will Impact Mobility
Central to the discussion on recapitalizing Fannie and Freddie is protecting the 30-year mortgage. Fannie and Freddie were created by the federal government to help subsidize 30-year mortgages by allowing banks to minimize risk through securitization. Thirty-year mortgages have made it possible for millions of Americans to afford to purchase homes. Ensuring that such loans will continue to be readily available is very important to the employee mobility industry.
The Trump Administration’s proposal would start moving Fannie and toward privatization, but would include a guarantee from the federal government on their loans. Already, both Democrats and Republicans have voiced their displeasure with this hybrid situation. Many Democrats are happy with the current situation while more conservative Republicans don’t support a government guarantee of Fannie and Freddie’s loans. Some Congressional Democrats have already opposed the proposal arguing that may of its provisions will make it harder for lower income households to find affordable housing.
Any substantial changes to recapitalize Fannie and Freddie will require Congressional action. Getting the proposal through the Democratically controlled House of Representatives along with the 60 votes needed for it to pass in the Senate, will require extensive bipartisan negotiations. With the 2020 election rapidly approaching, it is difficult to imagine Congress wanting to wade too far into this divisive issue with its high economic stakes. As most employee transfers involve buying and/or selling a home, it is critical for the mobility industry and transferees that there be stability within the mortgage market.
Worldwide ERC® will continue to monitor this issue and provide updates as Congress and the Administration to continue to work on this plan. The proposed restructuring of Fannie Mae and Freddie Mac will also be on the agenda of Worldwide ERC®’s Real Estate and Mortgage Forum meeting at the upcoming Global Workforce Symposium in Boston, MA on 15 October 2019. The Forum meeting will provide the most up-to-date information on these changes from industry experts.
