Will GSE reform get some clarity from long-awaited blueprints?
WASHINGTON — The mortgage industry will be looking for answers when the Trump administration unveils its plans to shake up the housing finance system and end the conservatorships of Fannie Mae and Freddie Mac. But the blueprints could raise just as many questions.
A path forward for the government-sponsored enterprises has essentially been 11 years in the making, with the mortgage giants sitting in limbo under federal control for the past decade.
Many hope that the upcoming, presidentially directed reports by the Treasury Department and the Department of Housing and Urban Development will provide some clarity.
The blueprints are expected to be released after Labor Day. Key issues will be whether the reports offer guidance on how much capital Fannie and Freddie should hold, the status of a government guarantee and the involvement of Congress in developing a reform plan.
In its March memo, the Trump administration said it was looking for solutions that would promote competition in the mortgage market, create sustainable homeownership options and protect taxpayers from future bailouts. Sustainable homeownership is the “benchmark of success” for reform, according to a White House press release issued at the time.
In what could be the most significant step to date toward ending government control of Fannie and Freddie, Federal Housing Finance Agency Director Mark Calabria and Treasury Secretary Steven Mnuchin may discuss changes to the "net worth sweep," a series of agreements governing how the mortgage giants transfer revenue to the government. But Calabria has said he is waiting to review the upcoming reports on GSE reform before addressing changes to those agreements.
Still, some industry stakeholders and consumer groups suggest the reports could offer just broad strokes, leaving the real reform work for later.
“I just don’t know how aggressive the Trump administration wants to be, and so I think that’s going to be an indication to see if they’re looking to maintain the status quo or if they really are trying to change the dynamic,” said Ted Tozer, a senior fellow at the Milken Institute and former president of Ginnie Mae.
Experts have pointed to four areas in particular to look out for when the reports are released that should provide valuable insight into the administration’s direction on housing finance reform.