The Real Deal National

Mortgage guarantors Fannie Mae and Freddie Mac to return to private control

Plan will be a version of “recap and release,” to ensure mortgage guarantors have enough capital to withstand loan losses in downturn
May 31, 2019 09:50AM

President Donald Trump (Credit: Getty Images)

President Donald Trump (Credit: Getty Images)

More than a decade after the government seized control of Fannie Mae and Freddie Mac, the Trump administration is finalizing a plan to return the mortgage guarantors to private shareholder membership. That would be a boon for investors who have been banking on the move. The proposal could be on President Trump’s desk for approval in the coming weeks.

The plan will likely be a version of what has been called “recap and release,” to ensure Fannie and Freddie have sufficient capital to withstand loan losses in any potential downturn. That could mean raising more than $125 billion for what are now government-sponsored enterprises, according to the Federal Housing Finance Agency, the Wall Street Journal reported.

The proposal, being developed by the Treasury Department, would return Fannie and Freddie to how they operated before the financial crisis more than 10 years ago, when they got into hot water for taking on too much debt and were seized through conservatorship. Sign-off on the proposal by Treasury Secretary Steven Mnuchin is likely to come sometime next month, after Trump signed a memo in March detailing intentions to end the conservatorship. The Trump administration has said it would keep intact the existing government guarantee that Freddie and Fannie loans now have in case of default. [WSJ] — Georgia Kromrei