WASHINGTON (Reuters) - U.S. Senate Banking Committee Chairman Mike Crapo released an outline to overhaul the nation’s housing finance system, which would see Fannie Mae and Freddie Mac privatized after years of government control.
The outline could kickstart a housing finance reform debate in Congress, although several details are yet to be determined. Crapo said some of his priorities in any housing finance overhaul are protecting taxpayers and preserving the 30-year fixed rate mortgage.
“We must expeditiously fix our flawed housing finance system,” the Republican senator said in a statement.
On Tuesday, the White House said it expected Congress to play a key role in any government effort to overhaul the housing finance market. Both parties have agreed the current arrangement, in which Fannie and Freddie operate under a government conservatorship that sees them guaranteed by taxpayers and passing profits on to the Treasury Department, is unsustainable. But any attempt to significantly alter the current system has failed to gain traction.
The Trump administration soon plans to release its vision for how that policy should change, saying it is a priority. The Republican administration recently replaced the head of the Federal Housing Finance Agency, which oversees Fannie and Freddie, and administration officials have said they are aiming to remove Fannie and Freddie from government control.
Crapo’s plan would privatize Fannie and Freddie, and would invite private competition in the mortgage guarantor market by placing limits on how many mortgages any one entity can guarantee. Banks would not be permitted to be direct competitors.
Eligible mortgages for such guarantees would have to meet certain standards to improve odds of repayment, and guarantors would have to meet certain capital, leverage and risk requirements.
Fannie and Freddie, and any new guarantors, would still be overseen by the Federal Housing Finance Agency, which currently regulates the two government-sponsored enterprises. Crapo’s outline would also create a fund to help provide affordable housing, replacing current affordable housing policy.
In the depths of the subprime mortgage crisis, Congress placed Fannie and Freddie under Treasury Department control. Under the current arrangement, all their quarterly profits go to the federal government. The enterprises have paid the Treasury $292 billion in dividends since the 2008 takeover, after receiving $191 billion in government support, according to research from investment bank Keefe, Bruyette & Woods.
Reporting by Pete Schroeder; Editing by Chizu Nomiyama and Jonathan Oatis