Trump’s move to take Fannie and Freddie private could mean higher mortgage costs

Capital requirements may lead mortgage guarantors to raise fees

Jun.June 04, 2019 10:40 AM
FHFA director Mark Calabria (Credit: Federal Housing Finance Agency and iStock)

FHFA director Mark Calabria (Credit: Federal Housing Finance Agency and iStock)

The Trump administration’s plan to return Fannie Mae and Freddie Mac to private ownership, which the president has called a “pretty urgent” issue, may come with some politically inconvenient truths for 2020.

Mark Calabria, the new director of the Federal Housing Finance Agency, insists that the companies raise capital buffers before his agency releases them from government control. One result of these requirements will likely be higher fees for lenders that the companies insure, which will then lead to higher mortgage costs, Bloomberg reported.

“It’s unnecessary and doesn’t make any sense,” Mark Zandi, chief economist of Moody’s Analytics, told Bloomberg. “Higher mortgage rates will raise payments and reduce demand. Less demand will mean lower house-price growth.”

As President Trump ramps up his reelection campaign with an approval rating stuck below 45 percent in most polls, the health of the U.S. economy could become a key factor in his drive for a second term. Higher mortgage costs would put further pressure on an economy already wobbling as a result of the trade war with China.

Previous capital requirements for Fannie and Freddie were suspended in 2008 when the agencies were put under government control. A final plan for new rules is expected to be released later this year.

Though the Trump administration has publicly said it wants to work with lawmakers to finally put an end to the mortgage guarantors’ decade-long conservatorship, plans are also being made for a unilateral move that bypasses Congress. The backing of Calabria, a Trump appointee, will be necessary to execute any such plan.[Bloomberg] — Kevin Sun

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