fog.png
Friday May 29th, 2020 10:32AM

Administration unveils plan to privatize Fannie, Freddie

By The Associated Press
Related Articles
  Contact Editor

WASHINGTON (AP) — The Trump administration has unveiled its plan for ending government control of Fannie Mae and Freddie Mac, the two giant mortgage finance companies that nearly collapsed in the financial crisis 11 years ago and were bailed out at a total cost to taxpayers of $187 billion.

The administration's plan calls for returning Fannie and Freddie to private ownership and reducing risk to taxpayers. That while preserving homebuyers' access to 30-year, fixed-rate mortgages, a pillar of housing finance. The Treasury Department published the plan Thursday and submitted it to President Donald Trump, who called for it in March.

While not prominently in the public eye, the two companies perform a critical role in the housing market. Together they guarantee roughly half of the $10 trillion U.S. home loan market.

Fannie and Freddie, operating under so-called government conservatorships, have become profitable again in the years since the 2008 rescue and have repaid their bailouts in full to the Treasury.

The administration initially looked to Congress for legislation to overhaul the housing finance system and return the companies to private shareholders. But Congress hasn't acted, and now officials say they will take administrative action for the core change, ending the Fannie and Freddie conservatorships.

The new plan would make the companies privately owned yet government "sponsored" companies again. Their profits would no longer go to the Treasury but would be used to build up their capital bases as a cushion against possible future losses.

___

WHAT ARE FANNIE MAE AND FREDDIE MAC AND WHAT DO THEY DO?

Before the Great Depression of the 1930s, financing for mortgages was mainly provided by life insurance companies, banks and thrifts, with little government support. Fannie was created in 1938 to buy loans issued by the Federal Housing Administration. Freddie was established in 1989.

They are called government-sponsored enterprises. Before they were taken over in 2008, they were private companies but still enjoyed an implicit guarantee that the government would step in and rescue them if they failed. That's what happened after the collapse of the housing market and the wave of mortgage defaults.

The companies don't make home loans. They buy them from banks and other lenders, and bundle them into securities, guarantee them against default and sell them to investors. Because the companies are under government control, investors are eager to snap up the "safe" securities.

And because Fannie and Freddie stand behind nearly half of U.S. home loans, they're important to homeowners and potential buyers though people may not see their footprint.

___

WHY DOES THE TRUMP ADMINISTRATION WANT TO END GOVERNMENT CONTROL?

Administration officials say the government should have only a limited role in housing finance, and that the current system leaves taxpayers exposed to potential bailouts again. Some lawmakers, both Republicans and Democrats, agree with that view.

Senior Treasury officials told reporters Thursday that the government's far-reaching power in this area means the Federal Housing Finance Authority can determine who gets a home mortgage, the price and terms of the loan, how it is made and then serviced and what happens if a borrower defaults.

The administration's proposed overhaul of housing finance "will protect taxpayers and help Americans who want to buy a home," Treasury Secretary Steven Mnuchin said in a statement. "An effective and efficient federal housing finance system will also meaningfully contribute to the continued economic growth under this administration."

___

WHAT IS THE ADMINISTRATION PROPOSING?

There are nitty-gritty details of housing finance in the plan, but the central change is ending the conservatorships. Officials haven't given a timeline for the administrative action.

Mark Calabria, the head of the FHFA, indicated recently that it wouldn't be any time soon, and likely after 2020. Some conditions will have to be met for the companies to be "ready to exit," he said. They include ensuring the companies have sufficient capital to operate, and to continue on their own in the event of a severe economic downturn.

Other changes outlined in the plan would have to be approved by Congress. They include replacing Fannie and Freddie's affordable housing goals with more "tailored support" for first-time homebuyers and low- and moderate-income borrowers.

___

ARE THERE CONCERNS WITH THE NEW APPROACH?

Some critics have expressed concern that the new capital requirements for the companies could cause them to increase their fees for guaranteeing mortgages, potentially raising borrowing costs for homebuyers.

Sen. Sherrod Brown of Ohio, the senior Democrat on the Senate Banking Committee, called the new plan "another industry giveaway that would destabilize the economy ... and limit access to mortgages for working people across the country."

"President Trump's housing plan will make mortgages more expensive and harder to get," Brown said in a statement.

Administration officials acknowledge it's hard to predict what the impact on borrowing costs would be. But they maintain that by removing government restrictions, the plan would likely expand the supply of mortgages and possibly lower costs.

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP Online Headlines - Washington, AP Online Congress News, AP Business, AP Business - Economy, AP Business - Financial Markets, AP Business - Industries, AP Business - Financial Services, AP Business - Personal Finance, AP Business - Real Estate
© Copyright 2020 AccessWDUN.com
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
1 acquitted in deadly warehouse fire; jury deadlocks on 2nd
A jury has acquitted one man of involuntary manslaughter but couldn't reach a verdict for the leader of an artists' commune accused of turning a California warehouse into a cluttered maze that trapped 36 partygoers during a fast-moving fire
6:17PM ( 5 minutes ago )
Newly hired scientist for California among boat fire victims
A California boat fire claimed the lives of a recently hired environmental scientist to lead marine conservation for the state, along with free spirits and parents with teenage and adult children
6:03PM ( 19 minutes ago )
Dorian grazes Carolina coast, aims for Outer Banks
Hurricane Dorian is sideswiping the Carolina coast with shrieking winds and sideways rain, threatening a direct hit on the dangerously exposed Outer Banks overnight
6:02PM ( 20 minutes ago )
Associated Press (AP)
The Latest: Governor: Dorian will get worse for N Carolina
North Carolina officials say coastal areas have yet to see the worst from Hurricane Dorian despite apparent tornadoes and heavy rains as the storm approaches from the south
5:25PM ( 57 minutes ago )
Official: Trump to challenge California mileage authority
A government official says the Trump administration is moving forward with a proposal to revoke part of California's authority to set its own automotive emissions and fuel economy standards
5:22PM ( 59 minutes ago )
The Latest: Dorian advancing to Carolinas, weakens slightly
Forecasters say Hurricane Dorian is expected to slowly weaken as it travels near and along the coasts of South and North Carolina
5:06PM ( 1 hour ago )
AP Business
US, Chinese envoys to meet in October for tariff war talks
US, Chinese envoys to meet in October for talks on tariff war that threatens global economic growth
2:02PM ( 4 hours ago )
Johnson seeks UK election bid as political foes push back
Boxed in by opponents and abandoned by his own brother, British Prime Minister Boris Johnson is struggling to keep his Brexit plans on track, accusing lawmakers blocking his call for an election of thwarting democracy
1:48PM ( 4 hours ago )
Survey: US services sector expanded at faster pace in August
Survey: US services sector expanded at faster pace in August in reassuring sign for economy
11:26AM ( 6 hours ago )
AP Business - Economy
Long-term mortgage rates dip; 30-year at 3-year low of 3.49%
U.S. long-term mortgage rates fell this week, with the average on the key 30-year loan reaching its lowest point in nearly 3 years
12:02PM ( 6 hours ago )
Asian shares rise amid optimism about Hong Kong, Brexit
Asian shares are mostly higher amid encouraging global developments, including the potential for a less chaotic Brexit and easing political tensions in Hong Kong
2:54AM ( 15 hours ago )
Hong Kong withdraws extradition bill that sparked protests
Hong Kong withdraws extradition bill that sparked months of demonstrations, but protesters say the move is too little, too late and they will push for their other demands to be met
8:38PM ( 21 hours ago )
AP Business - Financial Markets
The Latest: Flights canceled as Dorian approaches Southeast
Much of southeastern Virginia is shutting down as Hurricane Dorian churns up the Atlantic Coast
4:16PM ( 2 hours ago )
The Latest: Shutdowns in Virginia as Dorian approaches
Much of southeastern Virginia is shutting down as Hurricane Dorian churns up the Atlantic Coast
3:39PM ( 2 hours ago )
The Latest: 3rd storm-related death reported in Florida
A third death in Florida is being blamed on Hurricane Dorian
3:13PM ( 3 hours ago )
AP Business - Industries
Lagarde defends European Central Bank stimulus at hearing
The nominee to succeed Mario Draghi as head of the European Central Bank has defended the bank's record low interest rates and extraordinary stimulus measures deployed in the wake of the Great Recession and eurozone debt crisis
9:10AM ( 1 day ago )
Nominee to head European Central Bank defends stimulus
The nominee to succeed Mario Draghi as head of the European Central Bank has defended the bank's record low interest rates and extraordinary stimulus measures deployed in the wake of the Great Recession and eurozone debt crisis
5:30AM ( 1 day ago )
Greece ends crisis-era capital controls
Greece has formally ended the last remaining banking restrictions imposed four years ago during a financial crisis that saw the country nearly crash out of the eurozone
9:25AM ( 3 days ago )
AP Business - Financial Services
Manafort's lawyers: State charges are double jeopardy
Paul Manafort's lawyers say his New York mortgage fraud case should be dismissed on double jeopardy grounds
1:54PM ( 4 hours ago )
College students, make the most of your summer earnings
College students can help set themselves up for financial success upon graduating by saving summer earnings and paying down high-interest debts
10:33AM ( 7 hours ago )
Millennial Money: #couplegoals start with a money summit
Regular money summits can help you touch base on important financial goals and give you peace of mind about the state of your union and your finances
1:05PM ( 2 days ago )
AP Business - Personal Finance
Newly hired scientist for California among boat fire victims
A California boat fire claimed the lives of a recently hired environmental scientist to lead marine conservation for the state, along with free spirits and parents with teenage and adult children
6:03PM ( 19 minutes ago )
Dorian grazes Carolina coast, aims for Outer Banks
Hurricane Dorian is sideswiping the Carolina coast with shrieking winds and sideways rain, threatening a direct hit on the dangerously exposed Outer Banks overnight
6:02PM ( 20 minutes ago )
The Latest: Cabal-Farah vs. Granollers-Zeballos in doubles
Wimbledon champions and No. 1 seeds Juan Sebastian Cabal and Robert Farah have advanced to the U.S. Open men's doubles final
6:01PM ( 20 minutes ago )
The Latest: Dorian evacuees head to North Carolina speedway
A North Carolina speedway continues to get evacuees from Hurricane Dorian
5:58PM ( 24 minutes ago )
The Latest: Jury acquits 1, hung on 2nd in warehouse fire
A jury has acquitted one man of involuntary manslaughter but couldn't reach a verdict for the leader of an artists' commune accused of turning a California warehouse into a cluttered maze that trapped 36 partygoers during a fast-moving fire
5:55PM ( 27 minutes ago )