Future of Fannie, Freddie privatization is uncertain

Mnuchin says privatization unlikely; reports suggest otherwise

FHFA director Mark Calabria and Treasury Secretary Steven Mnuchin (Getty)
FHFA director Mark Calabria and Treasury Secretary Steven Mnuchin (Getty)

It’s unclear if the Trump administration will achieve its goal of ending the government’s involvement in Fannie Mae and Freddie Mac before President-elect Joe Biden takes office.

Treasury Secretary Steven Mnuchin said in an interview with the Wall Street Journal that he’s unlikely to support a consent order that would end the government’s conservatorship of the mortgage-finance giants before President Donald Trump leaves office.

Instead, Mnuchin said he is focused on ways for Fannie and Freddie to build capital to absorb future losses and eventually raise money from new investors. He said he did not want to do anything that puts taxpayers at “additional risk.”

“We also want to be careful that we don’t do anything that overnight would limit access to mortgage finance,” Mnuchin said in the interview.

But the treasury secretary’s comments conflict with a new report from Business Insider, alleging that Fannie Mae executives have told top employees to be prepared to work over the holidays, as an “11th-hour release” from the conservatorship agreement may be coming. Business Insider cited sources familiar with the matter and internal communications.

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The continued government involvement with Fannie and Freddie has become a hot-button issue for free-market conservatives, who believe the mortgage companies should return to privatization since going under government control after the financial crisis.

Mark Calabria, the director of the Federal Housing Finance Agency, which oversees Fannie and Freddie, wanted to expedite this process before Biden took office. He wanted the government to take legal steps that the next administration would be hard to reverse, but needed Mnuchin’s approval in order to do so.

Previously, Calabria was attempting to put together $240 billion in capital that Fannie and Freddie would need to hold to go private.

Fannie and Freddie do not originate home loans, but rather guarantee the mortgages by purchasing and securitizing loans which they then sell to investors. The agencies play a crucial role in the pricing of home loans and the 30-year fixed rate mortgage.

The government took over the entities after the 2008 financial crisis to stave off insolvency because of their exposure to subprime loans.

[WSJ, BI] — Keith Larsen