The Trump Administration has said it wants to get Fannie Mae and Freddie Mac out of government control, but in the meantime it’s not being shy about seeking to use revenue from the U.S.-backed mortgage guarantors to reduce the deficit.
In its 2019 spending plan released Monday, the administration asked Congress to raise the fees Fannie and Freddie charge to back payments on mortgage-backed securities by 0.1 percentage point, a move it said would reduce the federal budget deficit by $25.7 billion over the next decade.
The budget plan, while unlikely to be implemented by Congress, provides at least a small window into how the administration thinks about the future of Fannie, Freddie and the rest of the housing-finance system. It shows that administration officials want to reduce the government footprint in the mortgage market and possibly pull back on funding for affordable housing.
To help pay for a payroll tax cut during the recession, Congress told Fannie and Freddie to add a 0.1 percentage point fee to the guarantee fees, which are paid by borrowers. That increase is set to expire in 2021.
Affordable Housing
President Donald Trump’s budget request would extend the increase to 2023, while also raising it to 0.2 percentage point. It also calls for Fannie and Freddie to stop allocating money to trust funds used to help promote affordable housing.
More than a year into the administration, the Treasury Department has revealed little about what it wants to see happen with Fannie and Freddie. Recently, Treasury officials have said they want to work with Congress on housing-finance reform legislation, though in a recent hearing, Treasury Secretary Steven Mnuchin acknowledged that he has authority to implement some reforms without Congress.
Private shareholders of Fannie and Freddie stock, including some prominent hedge funds, have pushed for the Trump administration to move to release the companies from government control without Congress. But if the administration has any such plans, they’re not reflected in the budget.
Mnuchin and other Treasury officials have said that one of their goals is to increase the number of mortgages made that don’t have backing from Fannie, Freddie or other government-linked agencies. The private mortgage market, other than for high-balance jumbo mortgages, has been moribund since the financial crisis.
‘Private Lenders’
A budget document released Monday said the administration thinks raising Fannie’s and Freddie’s fees “would help to level the playing field for private lenders.”
Though Congress isn’t likely to implement the proposals, they could signal steps the Trump administration may take once they appoint a new director of the Federal Housing Finance Agency, Cowen analyst Jaret Seiberg said in a research note on Monday. The FHFA, which controls Fannie and Freddie, until 2019 is helmed by Mel Watt, an Obama appointee.