American Banker: White House pushes surprise Fannie, Freddie reform plan, but is it workable?

American Banker, June 21, 2018: White House pushes surprise Fannie, Freddie reform plan, but is it workable?

WASHINGTON — The Trump administration proposed Thursday to rip off the Band-Aid from Fannie Mae and Freddie Mac, ending conservatorship of the mortgage giants and leaving them to raise their own capital in the private market. But the plan raises a whole host of questions and left many wondering whether it could advance.

Included as part of an Office of Management and Budget plan for reorganizing the government, the housing finance reform proposal would appear to require both legislative and administrative action, such as creating an explicit government guarantee for mortgage-backed securities for “limited, exigent circumstances.”

“There are large hurdles on both sides to getting this passed from a vote count perspective,” said Rob Zimmer, head of external communications for the Community Mortgage Lenders of America.

The plan calls for reducing the footprint of the government-sponsored enterprises in the housing market. Fannie and Freddie would be converted into “fully private entities.” The housing giants could access the explicit federal guarantee, but so could other market entrants.

Both GSEs would lose their federal charters. A federal regulator would oversee the “fully privatized GSEs,” approve the creation of new guarantors and “develop a regulatory environment that is conducive to … competition.”

But Jesse Van Tol, chief executive of the National Community Reinvestment Coalition, blasted the proposal over the changes to affordable housing.

“By eliminating affordable housing goals from the conventional mortgage market, lenders can choose to loan only to the well-heeled rich and ignore everybody still working their way up the economic ladder,” he said in a press release.

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