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Determining the fate of Fannie Mae and Freddie Mac is the top question that has roiled the housing market since the government seized the two companies in 2008 after a massive bailout to prevent their collapse during the mortgage crisis.
The White House last week released a preside ntial memorandum directing Treasury to come up with a plan to end government control of Fannie and Freddie, as well as Congress ramped up its own efforts to remake the mortgage finance system. Fox Business News reported this week that administration officials have reached out to Wall Street in the possibility of privatizing the mortgage giants through a sale.
Senate Banking Chairman Mike Crapo (R-Idaho), who held two days of hearings last week on his framework to reform Fannie and Freddie, assured his colleagues on Thursday that Calabria, and outspoken critic of the government's role in the mortgage market , would seek lawmakers' input before acting.
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During his confirmation hearing, Calabria "committed to working with me, and other members of this body, reaching a comprehensive solution on the conservatory of Fannie and Freddie, once and for all," Crapo said on the Senate floor "He agrees with me, and many others, that action on housing finance reform is the prerogative of Congress, and that after a decade of conservatorship, it is long overdue," Crapo added.
In the memo last week, Trump directed Treasury Secretary Steve Mnuchin to "develop a plan for administrative and legislative reforms" with the goal of "ending the conservatorships of the [government-sponsored enterprises] upon completion of specified reforms."
The seven-page memo lists three conditions for ending conservatorship: Fannie and Freddie would have to hold more capital; the government would have to be “compensated for explicitly and implicitly provided by the GSEs or any successor entities in the form of an ongoing payment”; and the GSEs' portfolios and activities would have to be reduced.
The administration also called for authorizing the Federal Housing Finance Agency to approve new guarantors to build the private sector role in the mortgage market.
Mnuchin will have to specify whether his proposals are a legislative or administrative reform and provide a timeline for implementation of the administrative steps. Trump directed him to submit his plan "as soon as practicable."
There are plenty of smaller steps Calabria could take to shrink Fannie and Freddie's footprint in the meantime, such as lowering the limit for the maximum size of loans the companies can purchase. The FHFA could also tighten minimum credit requirements, raise fees for Fannie and Freddie charge lenders and require the companies to limit purchases of certain loans, like cash-out refinancing.
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