President Donald Trump signed a memo Wednesday calling on federal agencies to come up with a plan for overhauling the U.S. housing-finance system, kick-starting a process that aims to address the biggest piece of unfinished business from the 2008 credit crisis.
Trump directed the Treasury Department and Department of Housing and Urban Development to present ideas for ending federal control of the Federal National Mortgage Association, known as Fannie Mae, and the Federal Home Loan Mortgage Corp., known as Freddie Mac, according to the memo released by the White House. The Trump administration has been promising to release a plan for weeks, and the memo is the product of months of meetings among top officials over what to do with the mortgage-finance giants.
Trump wants the Treasury Department to develop a plan to "end the conservatorship of Fannie Mae and Freddie Mac and improve regulatory oversight of them," the White House said.
While Treasury Secretary Steve Mnuchin has said it's a priority to return the companies to the private market, such a dramatic shift probably won't happen anytime soon. The White House has made clear that it wants to work with Congress, where a series of housing-finance overhaul efforts have faltered over the past decade amid political divisions.
The White House reaffirmed Wednesday that the administration "wants to work with Congress to achieve comprehensive reform that improves the housing-finance system."
Shares of Fannie rose 8.2 percent Wednesday in New York trading, while Freddie gained almost 7.5 percent.
In its memo, the White House outlines a broad set of recommendations for Treasury and Housing and Urban Development departments, such as increasing competition for Fannie and Freddie and protecting taxpayers from losses.
Some of the changes could be done by federal agencies, such as allowing Fannie and Freddie to hold more capital. Others would require congressional action, including providing an explicit government guarantee for mortgage securities backed by the companies.
Deciding the fate of Fannie and Freddie, which stand behind about $5 trillion of home loans, is the biggest outstanding issue from the 2008 financial crisis. The companies were taken over as the housing market cratered, and they got a taxpayer rescue totaling $187.5 billion. They've since become profitable again, paying a combined $292.3 billion in dividends to the Treasury in recent years.
The companies play a crucial role in the housing-finance system by buying mortgages from lenders, packaging the loans into bonds and then selling the securities to investors.
Hedge funds that own Fannie and Freddie shares have long called on policymakers to let the companies build up their capital buffers and then be released from government control. It's unclear whether the White House would be willing to take such a significant step without first letting lawmakers take another stab at overhauling the companies.
Lawmakers are making a renewed push at coming up with a fix, with Senate Banking Committee Chairman Mike Crapo, an Idaho Republican, holding two days of hearing on Fannie and Freddie this week.
Another point of contention for private shareholders is the so-called profit sweep, which requires Fannie and Freddie to send almost all their earnings to the Treasury. The companies are expected to send a combined $4.7 billion to the Treasury before the end of the month.
Information for this article was contributed by Justin Sink of Bloomberg News.
Business on 03/28/2019