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The Administration is making moves to distance the U.S. mortgage market, specifically government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, from federal government control.

In a reversal from a decades-long stalemate in privatization discussions by various organizations, the Trump Administration last week said it will now back a return to private ownership for the mortgage entities that purchase nearly half of the loans on the $10 trillion U.S. mortgage market, according to the Urban Institute. The proposal was packaged along with a more comprehensive, 53-page housing finance reform plan released by the Treasury that includes plans to:

  • End the 10-year conservatorship of the GSEs
  • Create more healthy competition in the housing finance market
  • Regulate GSEs to minimize risk and provide financial stability
  • Ensure the federal government is appropriately compensated for GSE support

“The housing finance system is in serious need of reform,” states the Treasury plan. “The GSEs remain in conservatorship more than 10 years after the financial crisis, and they continue to be the dominant participants in the housing finance system. Although they remain critical to the functioning of that system, they are not yet subject to capital and other regulatory requirements tailored to the risks they pose to financial stability. This lack of reform has left taxpayers exposed to future bailouts.”

The National Association of REALTORS® (NAR) supports the move toward privatization, says President John Smaby.

“The National Association of REALTORS® thanks President Trump and his administration for initiating thoughtful, genuine effort toward housing finance reform. We look forward to reviewing the proposal in more detail and are optimistic that, at a minimum, the White House’s efforts will shed light on the remaining mile markers on the path to reform, along with the critical role the GSEs and Federal Housing Administration play in America’s housing market,” said Smaby in a statement.

“NAR continues working with the White House and Congress as we move closer to securing palatable, pragmatic improvements to our housing finance system, and we maintain our belief that NAR’s blueprint for GSE reform represents the best path forward for this system and our economy,” Smaby added. “Our proposed utility model, as any successful reforms must, highlights competition, protects taxpayers and remedies the failures of the pre-crisis system while ensuring equal access for responsible, mortgage-ready Americans in every community, safeguarding the role the GSEs were intended to play in our housing market.”

In a similar vein, the California Association of REALTORS® supports the motion to instill change in the way these mortgage entities function within the real estate finance system, but is apprehensive that the move toward privatization could negatively impact high-cost areas, such as California.

“C.A.R. appreciates the administration’s efforts to address the conservatorship of Fannie Mae and Freddie Mac. The proposal would ensure a government guarantee in the mortgage market, which is vital to maintaining the 30-year fixed-rate mortgage,” said C.A.R. President Jared Martin in a statement. “However, we have concerns that the proposal will harm high-cost areas, such as California, by reducing support for mortgages with higher loan balances. C.A.R. is also concerned about the impact on cities and communities throughout California if support is reduced for vacation homes and mom-and-pop investors.”

The 30-year fixed-rate mortgages are one of the most popular choices of U.S. homebuyers, according to the Wall Street Journal, leading to concerns that they could become out of reach, especially for the low-income segment.

“We will work with the National Association of REALTORS®, the administration and California’s Congressional delegation to ensure the needs of California’s real estate market continue to be met as this proposal moves forward,” Martin added.

Moving away from federal control could help to dampen concerns that the mortgage giants curried special favor from the government. While portions of the plan still need to be approved by Congress, which largely stands divided on the issue, ending the conservatorship does not need to be officially authorized. But a privatization plan has yet to be spelled out and could require costly funding and time, at the very least.

Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com.

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