Trump administration unveils plan to overhaul housing finance system

by Ryan Smith06 Sep 2019

The Trump administration released a plan on Thursday to overhaul the housing finance system and remove Fannie Mae and Freddie Mac from government conservatorship and put them on a path to privatization.

The GSEs have been under government control for more than a decade. They were placed in conservatorship when the government bailed them out in the wake of the 2008 financial collapse. Since then, Fannie and Freddie have turned their net profits over to the Treasury each quarter. The administration’s new plan would allow the GSEs to keep more of their earnings, according to a CNBC report.

The plan’s objectives are to create a limited role for the federal government in the housing finance system, increase the role of private-sector competition, and enhance taxpayer protections, CNBC reported.

“This plan addresses this last unfinished business of the financial crisis in a way that preserves what works in the current system, protects taxpayers, and reduces the influence of the Federal Government in the housing finance system,” a government report on the plan said.

The plan does not completely end the Treasury’s sweep of the GSEs’ quarterly net profits, CNBC reported. Instead, it allows Fannie and Freddie to retain more of their earnings in order to grow capital buffers. The plan will require legislative action to implement, and the Treasury said it would be necessary to keep its preferred stock purchase commitment in place while that legislation is pending, according to CNBC.

Some housing advocacy groups are suspicious of privatizing the GSEs, worrying that the move would drive up costs for homebuyers. Mike Calhoun, president of the Center for Responsible Lending, said the plan could implement too-strict rules on borrowers, such as requiring larger down payments on government-backed mortgages.

“For working-class Americans who want to buy a house, this could make it much more difficult to get a mortgage – and make the mortgage much more expensive,” Calhoun told NPR.