Media Reports Indicate GSE Plan Close to Release

Written By: Joel Palmer, Op-Ed Writer

Several media outlets reported that the long-awaited plan for ending conservatorship of Fannie Mae and Freddie Mac is closer to being released.

Bloomberg, Fox Business and The Wall Street Journal were among the outlets announcing that a privatization plan for the GSEs was circulating among key Trump administration officials.

Bloomberg wrote that the report drafted by the Treasury Department is being reviewed by White House economic adviser Larry Kudlow, among others. Fox Business quoted sources indicating that the White House may provide input this week, if it hasn’t already.

And The Wall Street Journal reported that the plan could be released shortly after Labor Day weekend.

All three outlets noted that the plan likely includes details on how to recapitalize the GSEs before releasing them from government control. Treasury wants to ensure the firms have adequate capital to absorb loan losses in a potential future housing slump. Previous estimates have pegged capital needs at more than $200 billion in order for the GSEs to be financially stable enough to be released by the Treasury.

Increasing capital levels has been challenging for Fannie and Freddie since they entered conservatorship because their profits have been sent to the U.S. Treasury since 2012.

Earlier this month, Fannie Mae reported second quarter net income of $3.4 billion, up from $2.4 billion for the first quarter of this year. Fannie Mae expects to pay that $3.4 billion in a dividend to Treasury by September 30. Through the second quarter of 2019, the company has paid $181.4 billion in dividends to Treasury.

Freddie Mac’s second quarter income was $1.8 billion, up slightly from the previous quarter, and which will also be paid as a dividend to Treasury. Cumulative payments to date total $119.7 billion.

Ending government control of Fannie and Freddie has risen and fallen on the list of Trump administration priorities since the president took office. It was considered a top 10 priority in 2017.

Then in March, President Trump released a memorandum that directed the Treasury Secretary to develop a plan for administrative and legislative reforms to achieve a number of housing reform goals, including ending the GSE conservatorship. In the memo, he wrote, “it is time for the United States to reform its housing finance system…”

But months later, it was reported that the administration likely won’t take action before the 2020 election, “in part because of the political risk of potentially upending the U.S. mortgage market.” The report cited the complicated nature of the process as also contributing to why it’s no longer as strong a priority.

Fox Business article said that administration officials are still mindful of the impact that radical change to the GSEs could have on the housing market and on economic growth during an election year. The outlet reported that the reform plan would address those concerns by “not calling for an immediate radical overhaul of the companies.”

About the Author

As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.