• Linn Cook

Fannie, Freddie & the Funky Supremes



Last week (September 5th), the Trump administration threw their hat into the Fannie Mae and Freddie Mac ring by announcing their extremely detailed and comprehensive plan for getting the mortgage giants out of conservatorship. Well, Treasury Secretary Steve Mnuchin thought it was detailed and comprehensive. Others gave it a proverbial "meh".


The main points of their plan were to:

  • Let Fannie and Freddie re-capitalize by allowing the GSEs to keep more of their profits (currently capped at $3 billion)

  • Allow the federal government to insure Fannie and Freddie loans via FHA

  • Expand the number of private companies that can securitize mortgages

  • Re-write underwriting guidelines to make mortgage lending more strict (see QM Patch)

  • Get rid of multi-family, cash-out refis, vacation home loans and other loan products that are deemed 'outside' of Fannie and Freddie's missions.

There's logic behind all of these proposed ideas, and various factions can be praised and villainized simultaneously. Add to this a recent court decision that found the federal government of illegally taking money from Fannie and Freddie through their 'net sweep' actions and declaring the FHFA's oversight unconstitutional.


Remember, it cost taxpayers $190 billion to bail out the GSEs back in 2008. Since that time, Fannie and Freddie have paid the US government more than $300 billion back because they're not allowed to retain more than $3 billion in reserves. There are a lot of shareholders out there that feel cheated because they weren't allowed to take part in these profits and stand to make a gigantic load of money if Fannie and Freddie are allowed back in the wild. Actually, only two really matter: 'The Big Short' hedge fund managers John Paulson and Steve Schwarzman.


However, the Trump administration is fighting back, as they are wont to do. Mnuchin is considering appealing the court ruling all the way to the Supreme Court. And just yesterday, both Mnuchin and HUD Secretary/surgeon/presidential candidate/most interesting person in the world Ben Carson announced that the administration would move forward with their brilliant plan no matter what anyone else says.


But everyone knows that at the end of the day, any plan to do anything with Fannie Mae and Freddie Mac requires congressional approval. The power of the people still matters on decisions that can have a huge impact on our own livelihoods, or in the case of the US mortgage market, the entire global financial market.


So take it for what it is. The Trump administration is trying to do something with the Fannie and Freddie quagmire, and that's commendable in and of itself. But whether their plan is good or bad for the industry is great fodder for drinking debates and a surefire way to spoil a party. But at least you'll think you look smart while doing it.


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