Trump officials vow to reform Fannie, Freddie if Congress doesn't act

Trump officials vow to reform Fannie, Freddie if Congress doesn't act
© Aaron Schwartz

Top Trump administration officials warned senators Tuesday that they plan to begin moving forward with a sweeping plan to overhaul the federal housing finance system with or without support from Congress.

Treasury Secretary Steven MnuchinSteven Terner MnuchinTrump called out for 'my favorite dictator' while awaiting Egyptian leader at summit: report Romney opposes Trump taking executive action to reduce capital gains taxes Overnight Defense: Afghanistan tops foreign policy issues at Dem debate | Erdogan says he'll discuss missile sale with Trump | US again challenges Beijing's claim to South China Sea MORE, Housing and Urban Development Secretary Ben CarsonBenjamin (Ben) Solomon CarsonHUD watchdog finds no misconduct by Carson in furniture controversy: report The Hill's Morning Report - Trump ousts Bolton; GOP exhales after win in NC On The Money: Senate spending talks go off the rails | Trump officials vow to reform Fannie, Freddie if Congress doesn't act | Majority in poll see recession on the way MORE and Federal Housing Finance Agency Director Mark Calabria urged the Senate Banking, Housing and Urban Affairs Committee to help unwind the post-crisis regulatory system that lawmakers have struggled to reform for more than a decade.

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Even so, Mnuchin, Carson and Calabria pledged to flex their executive authority to free the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, better known as Fannie Mae and Freddie Mac, from Washington’s control.

“The Administration’s preference is to work with Congress to enact comprehensive housing finance reform legislation,” Mnuchin said.

“At the same time, we believe that reform can and should proceed administratively,” he added.

There are steps the Trump administration can take on its own, including forcing Fannie and Freddie to boost capital reserves before releasing them to the private sector. But much of the plan released by Treasury last week cannot be enacted without legislation.

A major legislative push just 14 months before the 2020 elections would depend on ample bipartisan agreement and good will. While senators were unified by concern with rising housing prices nationwide, Senate Democrats made it clear that there was no appetite for the administration's proposal.

Sen. Sherrod BrownSherrod Campbell BrownHillicon Valley: Google to promote original reporting | Senators demand answers from Amazon on worker treatment | Lawmakers weigh response to ransomware attacks Senate Democrats want answers on 'dangerous' Amazon delivery system Hillicon Valley: Uber vows to defy California labor bill | Facebook, Google, Twitter to testify on mass shootings | Facebook's Libra to pursue Swiss payments license MORE (Ohio), the Banking panel’s ranking Democrat, condemned the Trump plan as a “cream-skimming privatization scheme." Brown said the proposal failed to reflect basic areas of agreement among lawmakers and advocates.

“Rather than create a system that addresses the needs of working families, the Trump Administration has put out half-baked proposals that will make mortgages more expensive and harder to get,” Brown said.

The Ohio senator is among several liberal lawmakers to rule out action on the administration's plan to privatize Fannie and Freddie, reduce their footprints, foster more competition in the housing finance market and reduce liability held by the U.S. government.

Fannie and Freddie have been under federal control since the 2008 foreclosure crisis spurred losses on mortgages owned by the firms.

The two government-sponsored enterprises seek to help banks extend home loans to underserved communities and low-income Americans by buying their mortgages to give lenders more cash to lend. The firms then package the mortgages into bonds and sell those bonds for profit. Some of those profits go back to the Treasury as payment for access to a government backstop.

The Trump administration has given lawmakers an open-ended set of guidelines meant to reshape Fannie and Freddie into smaller firms with less leverage and control over the secondary housing finance market. 

“We are the ones holding the bag at the end of the day after everybody else in the process has made money and walked away,” Calabria said. “This is not a safe situation to be in.”

Republicans who have long sought to privatize Fannie and Freddie praised the administration’s proposal and urged the banking panel to move forward with its recommendations. 

“There’s common ground that could be had and it is very unfortunate that we are not able to hold a markup on this approach,” said Sen. Mike RoundsMarion (Mike) Michael Rounds'Mike Pounce' trends on Twitter after Trump slip at GOP retreat Conservatives offer stark warning to Trump, GOP on background checks Trump officials vow to reform Fannie, Freddie if Congress doesn't act MORE (R-S.D.).

“If this committee is serious about doing something, I think this is the time.”

Sen. Pat ToomeyPatrick (Pat) Joseph ToomeyNSA improperly collected US phone records in October, new documents show Overnight Defense: Pick for South Korean envoy splits with Trump on nuclear threat | McCain blasts move to suspend Korean military exercises | White House defends Trump salute of North Korean general WH backpedals on Trump's 'due process' remark on guns MORE (R-Pa.), a conservative who often butts heads with Trump on economic policy, called the administration’s plan a “very, very constructive set of ideas that we should all consider seriously.”

But Democrats insisted that the plan offered by Trump lacked adequate support for low-income and minority consumers who are often spurned by banks and other mortgage lenders. 

Those concerns were a chief complaint of Rep. Maxine WatersMaxine Moore WatersManufacturing group leads coalition to urge Congress to reauthorize Ex-Im Bank Democrats' impeachment message leads to plenty of head-scratching Trump officials vow to reform Fannie, Freddie if Congress doesn't act MORE (D-Calif.), the chairwoman of the House Financial Services Committee, who’s opposition effectively dooms the plan across Capitol Hill in the Democratic-controlled House. 

Sen. Mark WarnerMark Robert WarnerState probes of Google, Facebook to test century-old antitrust laws Hillicon Valley: Trump fires Bolton as national security adviser | DOJ indicts hundreds over wire-transfer scam | CEOs push for federal privacy law | Lyft unveils new safety features after sexual assault allegations On The Money: Senate spending talks go off the rails | Trump officials vow to reform Fannie, Freddie if Congress doesn't act | Majority in poll see recession on the way MORE (D-Va.), a moderate who has played a leading role in previous housing finance negotiations, also doubted the administration’s ability to support lending to troubled consumers if their plan to downsize Fannie and Freddie succeeded.

“If you’re making the footprint smaller,” Warner asked, “isn’t that going to mean a de facto decrease in cross subsidies in the system?"

“I don’t respectfully see how you make that happen,” Warner added.

Those questions and an already tight work calendar for Congress, which faces a slew of must-pass legislation in the months ahead, make housing finance reform unlikely in the current year. And with the 2020 elections approaching, the debate is also likely to become even more politically charged. Many Democratic presidential candidates have made affordable housing an important issue for their campaigns.

Administration officials, though, said they will push ahead if Congress doesn't. The officials provided no time frame but cautioned that lawmakers must begin work soon.

"Our priority is to maintain affordable housing," Mnuchin said, "but also to make sure that taxpayers are not at continued risk."

“There may be a difference in views on how we get there,” he added.