Inman News: White House wants to privatize Fannie Mae and Freddie Mac

The plan is designed to reduce taxpayer risk while creating a more competitive secondary market for mortgages

BY PATRICK KEARNS | Staff Writer JUNE 22, 2018

The Trump administration is proposing a sweeping reform of how the federal government supports housing finance by calling for the full privatization of mortgage-backed securities giants Fannie Mae and Freddie Mac and a reduction of some of their guarantees.

The changes — which are included in a 132-page document on government reform issued this week by the Office of Management and Budget and its director Mick Mulvaney — call for an end to the conservatorship of the two government sponsored entities (GSEs), which were taken under full government control during the 2008 financial crisis and bailed out by taxpayers to the tune of $187.5 billion.

In place of this arrangement will come new limited federal guarantees for mortgage-backed securities issued by Fannie and Freddie and any prospective private players that enter the secondary market alongside them, to be overseen by an unspecified “federal entity.”

The White House wants to give other mortgage lenders and banks a chance to enter the secondary market, where Fannie Mae and Freddie Mac currently purchase mortgages directly from lenders, add to these mortgages a guarantee that the GSEs will pay up if homeowners default, repackage the mortgages into mortgage-backed securities and hold them or sell them to investors. [MORE: Go to link here.]