Despite momentum towards actually ending the conservatorship of Fannie Mae and Freddie Mac seemingly growing by the day, the Trump administration is reportedly concerned about the impact of widespread housing finance reform in advance of the 2020 election.
And because of that concern, the administration may be considering holding off on significant reforms to the government-sponsored enterprises for at least another 18 months.
Bloomberg reported Friday that there are people in the administration who view GSE reform as “arduous, slow-moving and extremely complicated” and worry that the administration may not have the current bandwidth to properly address the issue.
Adding to the challenge is that Treasury Secretary Steven Mnuchin is spending much of his time on more pressing priorities, including the trade war with China, debt ceiling negotiations with Congress and imposing sanctions on Iran and other nations. Still, Mnuchin, who has experience in the mortgage banking industry, works on housing finance weekly, according to one of the people.
Additionally, some in the administration reportedly worry about the financial impact of GSE reform on the housing market in advance of what will surely be a deeply heated election.
Again from Bloomberg:
One concern among administration officials is that freeing Fannie and Freddie could impact the housing market, possibly making it harder for borrowers to get loans just as President Donald Trump is seeking another term, two of the people said. Housing is a key factor in the health of the U.S. economy, which is seen as crucial to Trump’s re-election prospects.
It should be noted that the White House denied that such a wavering is underway.
“The president earlier this year instructed the Department of Treasury to develop a comprehensive plan for bold reform,” White House spokesman Judd Deere said in an email statement. The National Economic Council, Treasury, Federal Housing Finance Agency and others “continue to work together on this presidential priority and anything to suggest otherwise is false,” Deere said.
As Deere said, Trump earlier this year officially called for the administration to come up with a plan to end the long-standing conservatorship of Fannie and Freddie, and recent reports suggested that plan may soon be released.
At the Mortgage Bankers Association Secondary Conference in Manhattan in May, Federal Housing Finance Agency Director Mark Calabria said ending the net worth sweep is the first step toward privatization, and then setting up an IPO to raise capital may follow.
Later, Calabria told Reuters that Fannie and Freddie may not be privatized in unison, as the government might choose to release one and then the other. “It may be preferable to stagger that process due to the complexities involved in getting the government-backed firms,” he said.
But there was a wet blanket thrown onto the GSE reform movement late last month when Craig Phillips, Mnuchin’s top housing advisor and the administration’s seeming point person on Fannie and Freddie reform, left his position without any substantive reforms at the GSEs taking place.
Now, the administration may be hesitating on pursuing GSE reform after all, according to Bloomberg. Or maybe it isn’t, according to the White House.
Lucky for us, figuring out which one is correct will be pretty easy. All we have to do is wait and see if the administration does indeed move to privatize the GSEs before the election. They’ve got 16 months to do it and the clock is running.