The Trump administration is growing wary of taking bold steps toward freeing Fannie Mae and Freddie Mac from federal control before the 2020 election, said people familiar with the matter, in part because of the political risk of potentially upending the U.S. mortgage market.
While White House and Treasury Department officials are eager to end the companies’ decade long conservatorships, they see the task as arduous, slow-moving and extremely complicated, said the people who asked not to be named in discussing internal deliberations.
Adding to the challenge is that Treasury Secretary Steven Mnuchin is spending much of his time on more pressing priorities, including the trade war with China, debt ceiling negotiations with Congress and imposing sanctions on Iran and other nations. Still, Mnuchin, who has experience in the mortgage banking industry, works on housing-finance weekly, according to one of the people.
Spokesmen for the White House and Treasury didn’t respond to a request for comment.
Releasing Fannie and Freddie is no easy lift. It could require raising more than $200 billion -- likely through the biggest share offerings in history -- to ensure the companies have enough capital to survive a meltdown. And the Treasury’s point-person on the companies, counselor Craig Phillips, left last month. His departure raises questions about who might drive work on the issue with other agencies, and potentially on Capitol Hill.
One concern among administration officials is that freeing Fannie and Freddie could impact the housing market, possibly making it harder for borrowers to get loans just as President Donald Trump is seeking another term, two of the people said. Housing is a key factor in the health of the U.S. economy, which is seen as crucial to Trump’s re-election prospects.
As wards of the state, Fannie and Freddie benefit from pristine credit ratings and a government line of credit, which keeps financing flowing for mortgage lending and borrowing rates low for buyers. It’s not clear how investors in mortgage bonds and lenders might react if the companies were no longer assumed to have the full backing of the U.S. government.
There’s still plenty of action the White House, Treasury and Fannie and Freddie’s regulator, the Federal Housing Finance Agency, can take in the next 18 months.
For instance, they can curtail Fannie and Freddie’s footprints in the mortgage market, which would reduce risks to the companies. FHFA Director Mark Calabria could also impose a formal rule that dictates how much capital Fannie and Freddie must hold.
Perhaps most significantly, Treasury and FHFA could halt a policy that requires the companies to send nearly all their earnings to the Treasury. Though one person familiar with the matter cautioned that ending the so-called profit sweep is unlikely to happen this year.