Housing advocates fear a Trump administration plan to return federal mortgage backers Fannie Mae and Freddie Mac to the private sector will increase the cost of house loans and make it harder for low-income and disadvantaged communities to buy homes.
Fannie Mae and Freddie Mac are the government-controlled companies that help provide money for the U.S. housing market by buying residential mortgages and packaging pools of those loans for sale to investors. Combined, the two companies back almost half of the nation’s $11 trillion mortgage market, according to the New York Times.
The two once publicly-traded private companies were placed into conservatorship and put under government control by the Bush administration during the 2008 financial crisis after a wealth of mortgage loans going bad had both going under and taking the U.S. economy with it.
That called for a government bailout at a cost of about $200 billion. In return, Fannie Mae and Freddie Mac since 2008 have had to send their profits to the U.S. Treasury, adding a tidy sum to the government’s coffers.
Now, the Trump administration in a 49-point proposal is recommending having Fannie Mae and Freddie Mac stand on their own again, thus limiting the federal government’s role in the obtaining of mortgages. The plan also calls for allowing additional private competition in the mortgage market, the Times explains.
Doing so, administration officials say, “will bring down mortgage rates. Officials say it would promote affordable housing and protect taxpayers from bailing out Fannie and Freddie in the event of another housing crash,” the Times reports.
But advocates for consumer protection and fair housing say that returning Fannie Mae and Freddie Mac to the private sector will give Wall Street too much control over the home-buying prospects of those living on Main Street.
“For working-class Americans who want to buy a house, this could make it much more difficult to get a mortgage and make the mortgage much more expensive,” Mike Calhoun, president of the nonprofit Center for Responsible Lending, told NPR.
Calhoun expressed concern that privatization could allow the Trump administration to “impose new rules on homebuyers that would be too strict, such as requiring bigger down payments to qualify for a government-backed mortgage,” according to NPR.
An example of just such a change is one that would specifically impact affordable housing efforts in cities like New York that have rent-control laws.
As explained by the Times, the administration wants to
[overhaul] federal affordable housing requirements and [set] restrictions that could discourage [Fannie Mae and Freddie Mac] from investing as heavily in mortgages for apartment buildings in areas like New York that have adopted rent-control laws. The administration says such laws impede housing development and the report calls upon regulators to revisit Fannie’s and Freddie’s standards for buying multifamily housing loans in rent-controlled areas, asserting that “scarce government subsidies should not be used to offset the adverse effects of these laws.”
Nikitra Bailey, executive vice president of the Center for Responsible Lending, told the Times the Trump plan could raise mortgage rates for “all borrowers”: those in rural areas, low- and moderate-income folks, as well as communities of color that already have a hard time finding affordable housing.
“The administration says it is trying to save taxpayers from the risk of another future catastrophic meltdown, but it is essentially turning the system over to Wall Street,” Bailey said.
Indeed, as the Times points out:
Privatization could also bring a windfall for hedge funds and other investors that bought Fannie Mae and Freddie Mac stock after the [financial] crisis for pennies, then pushed the administration to hasten the process.
But even Wall Street didn’t seem that impressed by the Trump plan, which was vague on details like how the two companies would get the money they’d need to go private again.
As Barron’s reports, on Friday, shares of both Fannie and Freddie were down, 14 percent and 12 percent, respectively.