Plan to revamp the housing market released

OPPORTUNITY: Mortgage rates are falling, meaning that millions of homeowners can refinance their mortgages and save money. The Trump administration has also proposed revamping the housing market. (Dreamstime/Tribune News Service)

WASHINGTON - President Donald Trump's administration on Thursday released a sweeping plan that could remake the U.S. housing market, starting with ending more than a decade of government control of two massive companies, Fannie Mae and Freddie Mac, which back half of the nation's mortgages.

The long-awaited plan from the Treasury Department includes nearly 50 proposals, including many technical changes to financial regulations, and is aimed at shrinking the government's role in the housing market. The cornerstone of the plan would resolve the fates of Fannie Mae and Freddie Mac, which 11 years ago this week were put into government conservatorship during the global financial crisis.

The proposals will "protect taxpayers and help Americans who want to buy a home," Treasury Secretary Steven Mnuchin said in a statement. "An effective and efficient federal housing finance system will also meaningfully contribute to the continued economic growth under this administration."

Fannie Mae and Freddie Mac play a critical part in the housing market, buying mortgages from lenders, then packaging them into securities to sell to investors. The government seized control of both companies in 2008 as the housing market unraveled and the firms' losses piled up.

The housing giants back half the America's mortgages and housing experts have warned that allowing them too much freedom again could lead to higher mortgage costs for consumers while enriching Wall Street investors.

Fannie Mae and Freddie Mac represent the last major unresolved business from the financial crisis, and Mnuchin has called them a top priority for more than two years. Under the plan, they would be turned back into private companies but would be required to pay taxpayers a fee for government protection. It would also open the market up to competitors for the first time.

While both Democrats and Republicans support ending government control of the companies, several other plans have stalled in Congress. The Obama administration shied away from the topic, fearful that a wrong move could disrupt the housing market and the availability of 30-year mortgages.

A senior Treasury Department official said that while the administration's plan was extensive, the changes are designed to be "incremental and realistic."

The issue is being closely watched by housing advocates as well as the banking and housing industries, which have all developed their own competing proposals on what should be done with the companies. Several Wall Street hedge funds also invested heavily in the companies' stock and bet that the Trump administration's efforts may clear the path for them to secure significant profits.

This comes at a time when many U.S. homebuyers are already struggling to find affordable homes. Prices have been rising for years, and there aren't enough moderately priced homes for sale, according to National Association of Realtors data.

Most of the Trump administration's proposals require action by Congress, but the Federal Housing Financial Administration, the regulator for Fannie Mae and Freddie Mac, could take some actions on its own. The agency is run by Mark Calabria, who was formerly Vice President Mike Pence's chief economist.

Calabria could end the government conservatorship of the companies and do away with a requirement that Fannie Mae and Freddie Mac send most of their profits to the Treasury Department without congressional approval, for example.

"It is, after 11 years, time to bring the conservatorships to an end," the proposal says. "Ending the conservatorships is a critical step to reducing that Government influence" on the housing market.

The Trump administration's plan attempts to reduce the government's influence on the housing market by shrinking Fannie Mae and Freddie Mac's roles. It also calls for a smaller role for the Federal Housing Administration, which currently backs about 15% of home purchases.

Fannie Mae and Freddie Mac would pay taxpayers a fee in return for a government guarantee in case they fall in financial trouble again. But taxpayers would be forced to bail out the companies again only in "exigent circumstances," according to the 53-page proposal. 

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