Trump's GSE reform plan unlikely to be enacted anytime soon – ratings agency

A top ratings agency predicts that the administration's plan to privatize Fannie and Freddie won't make much headway – at least for now

Trump's GSE reform plan unlikely to be enacted anytime soon – ratings agency

Don’t look for the Trump administration’s proposal to privatize Fannie Mae and Freddie Mac to come to fruition anytime soon, if one of the top ratings agencies is right in its predictions.

S&P Global Ratings has announced that its ratings and outlook on Fannie and Freddie securities will remain unchanged “despite the proposals the U.S. Administration released” on housing finance reform.

The proposal was released June 21 as part of a sweeping report that recommended overhauling or consolidating several government agencies. The report said that the government’s role in housing finance is confused by “overlapping and sometimes conflicting” goals and by the decade-long conservatorship of the GSEs.

“The Federal role in support of housing finance is not effectively targeted to households in need of assistance or sufficiently accountable to taxpayers, as the costs and benefits of that support are unclear,” the report said.

The report recommended fully privatizing Fannie and Freddie and placing them under the regulatory oversight of a federal entity with “secondary mortgage market experience.” That entity would also have the power to “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.”

S&P Global Ratings, however, said that it didn’t think the proposal would go anywhere – at least for now.

“We do not believe Thursday’s proposals are likely to be enacted within the coming two years,” the ratings agency said. “The (Office of Management and Budget’s) proposal includes several principles discussed in prior congressional attempts to redefine the role of housing-related entities, notably the 2013 bipartisan bill sponsored by Sens. Corker and Warner that failed to secure the requisite broad support from lawmakers.”

However, S&P Global Ratings said that if the administration’s proposal were to be enacted, it would likely cause the agency to lower its ratings on the GSEs’ senior debt securities. S&P Global Ratings said that it believes the GSEs have “a critical policy role” and an “integral link to the government.”