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 MnuchinNew book questions Harris's record on big banks On The Money: US paid record .1B in tariffs in September | Dems ramp up oversight of 'opportunity zones' | Judge hints at letting House lawsuit over Trump tax returns proceed Democrats ramp up oversight efforts over 'opportunity zone' incentive MORE, Housing and Urban Development Secretary Ben CarsonBenjamin (Ben) Solomon CarsonTrump launches effort to boost support among black voters Zoning is not the answer to all our housing problems Freer housing is 'fairer housing' — HUD should tie funding to looser zoning 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.

ADVERTISEMENT

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 BrownSunday shows — New impeachment phase dominates Brown confirms he won't enter 2020 race: 'I think it's a good field' GM officially sells Ohio plant, months after Trump touted sale 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 RoundsHillicon Valley: Facebook launches 'News Tab' | Senate passes bill to take on 'deepfakes' | Schumer outlines vision for electric cars Senate passes legislation to combat 'deepfake' videos America's newest comedy troupe: House GOP 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 WatersDivides over China, fossil fuels threaten House deal to reboot Ex-Im Bank Hillicon Valley: Lawmakers unleash on Zuckerberg | House passes third election interference bill | Online extremism legislation advances in House | Google claims quantum computing breakthrough On The Money: Lawmakers hammer Zuckerberg over Facebook controversies | GOP chair expects another funding stopgap | Senate rejects Dem measure on SALT deduction cap workarounds 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 WarnerHillicon Valley: Federal inquiry opened into Google health data deal | Facebook reports millions of post takedowns | Microsoft shakes up privacy debate | Disney plus tops 10M sign-ups in first day Microsoft embraces California law, shaking up privacy debate Google sparks new privacy fears over health care data 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.