WASHINGTON — 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.
While not prominently in the public eye, the two companies perform a critical role in the housing market. Together they guarantee 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 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.
Before the Great Depression, financing for mortgages was mainly provided by life insurance companies, banks and savings and loan associations. Fannie was created in 1938 to buy loans issued by the Federal Housing Administration. Freddie was established in 1989.
Before 2008, they were private companies but still enjoyed an implicit guarantee that the government would 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 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.
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.
The plan “will protect taxpayers and help Americans who want to buy a home,” Treasury Secretary Steven Mnuchin said in a statement.
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.