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Allies of former President Donald Trump are developing plans to move government-sponsored enterprises Fannie Mae and Freddie Mac out of federal conservatorship, a long-sought goal of certain politicians and a move that would have a notable impact on the mortgage finance industry. The news was first reported by the The Wall Street Journal (WSJ).
“Former Trump administration figures and bankers have been discussing plans on ending U.S. government control of the mortgage-finance giants should Trump win the presidential election, according to people familiar with the matter,” the Journal reported. “The talks have been under way since at least this past spring and include reaching out to investment managers for advice on how to get the deal done.”
Larry Kudlow, former director of the National Economic Council, is said to be a major advisor on the move, along with John McEntee, former director of the White House presidential personnel office.
When reached by the Journal, a Trump campaign official said that Trump himself “has never said anything about this throughout the campaign.” But the report described the delicate balance any viable conversation regarding the move would make.
“A top focus of the talks is ensuring that the companies will be well capitalized so as to not pose a risk to the U.S. housing market,” the WSJ report said, detailing the foundational relationship the GSEs have in government-sponsored funding for the all-important 30-year mortgage.
Previous attempts to remove the GSEs from federal conservatorship since it began in 2008, including Trump’s attempts during his 2017-2021 term of office, have failed. Proponents of continued conservatorship have contended that the companies who rely on the GSEs may be put at greater risk. Doubts also existed regarding bankers’ abilities to actually gather necessary financing for the move.
One element of the proposed plans include “having the Treasury Department partially back a certain amount of Fannie and Freddie loans through a so-called standby guarantee,” according to WSJ sources. “[This is] similar to the way the Federal Deposit Insurance Corporation (FDIC) backs deposits below a certain threshold at banks.”
Regarding paths to privatization, one discussed method is reportedly bypass both houses of Congress and instead to commence the process through the Federal Housing Finance Agency (FHFA). The agency would be “key to any plan,” the report said, since it establishes the GSEs’ capital requirements. Any additionally derived value from the GSEs could be divided between the government and GSE shareholders, which could avoid drawn-out and costly legal proceedings.
“Trump’s allies and other Republicans view privatizing the firms — or putting nongovernmental shareholders in control — as a way to reduce the country’s deficit and return money to taxpayers.,” the Journal stated. “Opponents of privatization have said that it would decrease access to credit for home buyers and increase the risk for taxpayers.”
The GSEs have been under federal conservatorship since 2008, when the Housing and Economic Recovery Act (HERA) was passed. Six weeks after that, the government engaged the conservatorship.
