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Trump administration starts from scratch on Fannie, Freddie reform

What is the best approach?

The industry shouldn’t hold its breath for a complete overhaul off Fannie Mae and Freddie Mac this year, according to congressional staffers cited in a Reuters article by Amanda Becker. However, other sources within the administration say there are other ways to fix housing finance at the government-sponsored enterprises, short of a comprehensive legislative fix. 

First though, the Reuters article quote staffers who say the Trump administration's most likely immediate focus is allowing the mortgage financing institutions' to rebuild depleted capital. This is notable because, for now, capital buffers at the GSEs are expected to be reduced to 0 by 2018.

From the article:

Congressional staffers say the Senate Banking Committee has begun weekly bipartisan staff briefings on Freddie and Fannie reforms, but it is starting from scratch. The House Financial Services Committee is focused on other legislation, such as renewing the flood insurance program and rolling back parts of the Dodd-Frank financial reform, pushing the mortgage giants' revamp down the to-do list, they say.

Analysts expect the two institutions to make a full $10 billion dividend payment for the fourth quarter on March 31. But investors will be looking for any indication from Watt or Mnuchin about whether they plan to allow the mortgage firms to retain profits later on and begin the slow recapitalization process.

Meanwhile, coming from separate part of the Trump administration, Vice President Mike Pence’s chief economist Mark Calabria told participants at the American Bankers Association Government Relations Summit in Washington that reforming Fannie Mae and Freddie Mac remains a financial regulation priority for the Trump administration.

However, Calabria was light on the exact details.

According to the article in the Morning Consult by Tara Jeffries, Calabria stated that “a set of principles” will likely emerge in the coming months and that the administration is examining mortgage finance policy to figure out the best approach.

Calabria also noted that the administration is putting ending bailouts at the top of the agenda. This follows similar concerns by the congressional staffers that the administration’s immediate focus is allowing the mortgage financing institutions' to rebuild depleted capital.

Panelists at Goldman Sachs’ recent housing and consumer finance conference weighed in on the discussion, noting that there are there are a lot of plates spinning on the table when it comes to reform.

There is a significant number folks who want the government’s role completely scrolled back. And, there are also a significant number of folks who don’t want to do anything, said Jim Parrott, senior fellow at the Urban Institute and owner of Falling Creek Advisors.

“We need to explain this in a way that is coherent,” said Parrott.

3d rendering of a row of luxury townhouses along a street

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