what’s at stake
Donald Trump’s return to the White House could mean an end to government control of mortgage giants Fannie Mae and Freddie Mac.
Trump recently floated taking public Fannie Mae and Freddie Mac, the government-sponsored enterprises that together process most US mortgages. The mortgage giants went under government conservatorship during the 2008 financial crisis, and Republicans want them released.
Trump’s first administration put together a plan to release the companies from conservatorship but didn’t ultimately follow through with it, a signal of how difficult it is to change the status quo. His second administration is providing little insight into its current strategy.
Trump will “eventually make whatever decision that he wants to make on his own timeline,” Federal Housing Finance Agency Director Bill Pulte told reporters recently.
Critics say such a move would be risky because the government currently backstops both firms, which package mortgages into securities to sell to investors. If the government releases them, the costs of those securities could increase and make mortgages more expensive. Trump insisted last week that the government would maintain its guarantee as well as an oversight role, comments which only created more confusion.
who’s making the case
Daniel Hornung, a senior fellow at MIT and a non-resident fellow at the Urban Institute who previously served as deputy director of former President Joe Biden’s National Economic Council, said releasing the firms from conservatorship right now would cause more harm than good. He argues it’s unlikely the administration could pull it off without worsening housing affordability:
“It’s likely that the risks of taking them out of conservatorship far outweigh the benefits. The risks are higher mortgage rates if not done carefully; less liquidity to the multifamily sector at a time when we desperately need more capital to get more housing built and more affordable housing operated; and the benefits are quite opaque, in a world where the companies are already quite profitable and well-run. So to take such big risk, you’d want to see [a] much clearer sense of benefit. And we just haven’t seen that.”
“If the market believes that there is less of a guarantee behind the mortgage-backed securities after an IPO than there is now, then mortgage rates would go up — because the underlying interest rates would go up. There are structures that one could put in place that might be able to convince the market that they’re just as guaranteed after an IPO as they are now.”
“For example, you could put in place a structure where the companies are paying a regular fee to the federal government in exchange for the guarantee. But that’s a complicated set of changes to make, again, in an environment where it’s just not clear that they’re going to be able to conduct that transaction in a way that convinces the market that the securities are as safe now as they are now.”
Norbert Michel, director of the libertarian Cato Institute’s Center for Monetary and Financial Alternatives, argued that not acting would keep in place the same system that led to disaster two decades ago:
“The federal government should sell its stake in mortgage giants Fannie Mae and Freddie Mac. The administration should also work with Congress to, at the very least, amend the companies’ charters to clarify that they no longer have a line of credit with the Treasury or a securities registration exemption.
“The US mortgage market should not include government-sponsored enterprises because private firms can purchase and securitize mortgages without a federal guarantee. Private profits should not be paired with the socialization of losses. Anything short of eliminating government sponsorship for these firms would leave in place the same system that led to the 2008 financial crisis.”