navycmdr
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$Trump $May $Renew a $Housing $Fight that could rattle mortgage rates
By Samantha Delouya, CNN - Mon December 2, 2024
https://www.cnn.com/2024/12/02/economy/fannie-mae-freddie-mac-mortgage-rates-housing/index.html
During his second term, President-elect Donald Trump is widely expected to privatize Fannie Mae and Freddie Mac,
the mortgage giants that guarantee 70% of America’s mortgages.
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“My Administration would have sold the government’s common stock in these companies at a huge profit and
fully privatized the companies,” Trump wrote in a 2021 letter after he left office to Republican Sen. Rand Paul.
“My Administration was denied the time it needed to fix this problem.”
Some of Trump’s supporters, including Bill Ackman, the billionaire hedge fund manager at Pershing Square
Holdings, are invested in the two companies and stand to potentially make millions of dollars if they
are spun off.
“The U.S. Presidential election in November 2024 may present the opportunity for a change in the status
quo,” Pershing Square’s 2023 annual investor letter said. “The Trump administration had begun the process
of releasing Fannie and Freddie from conservatorship, a process which would likely be completed in a
future Trump administration.”
But the way the Trump administration may usher in a new era of housing market finance, whether it be
privatizing Fannie and Freddie with the promise of government backing or a separate plan entirely, will
make all the difference.
“It’s going to be the big challenge walking this fine line because it’s been more than 15 years of this
conservatorship,” Tozer said.
During his second term, President-elect Donald Trump is widely expected to privatize Fannie Mae and Freddie Mac,
the mortgage giants that guarantee 70% of America’s mortgages.
Amid a housing market marked by stubbornly high mortgage rates, a long-standing supply shortage and soaring
home prices, some economists warn that privatizing these two mortgage behemoths, worth a combined $146 Billion
as of the third quarter of this year, would be overly complicated and could make it more expensive for many
Americans to borrow money to purchase a home.
Trump’s first administration tried — and failed — to wrest Fannie and Freddie from the government conservatorship
that’s been in place since the 2008 financial crisis. The government’s stake in the two mortgage giants could be
valued at billions of dollars, meaning a spinoff would potentially net a big payday for the government and private
investors in the two companies, said Ted Tozer, who led Ginnie Mae, a separate government-sponsored mortgage
company, during the Obama administration.
“Bringing them back to private companies isn’t outlandish,” Tozer said. “The question is, is it worth the
pain of the transition?”
In a 2016 paper, Mark Zandi, chief economist at Moody’s Analytics, estimated that full privatization of Fannie and
Freddie would cost the typical American taking out a new mortgage $1,200 annually. Taking into account home
prices and interest rates in 2024, that added cost today would be between $1,800 and $2,800 per year for a
typical mortgage holder, Zandi told CNN after updating his original paper’s calculations. Zandi said the added
cost would be even greater for Americans with lower incomes or credit scores.
The risk is that privatization efforts could spook investors without assurances that the government would bail
out Fannie and Freddie in a crisis like in 2008. Investors who buy up the loans would likely demand higher
rates for lower-income borrowers to compensate.
“If you’re a lower-quality borrower, you’re more risky and therefore will be charged more,” Zandi said.
“Today, you don’t have to pay that because you’re backstopped by the government.”
Karoline Leavitt, a spokesperson for the Trump-Vance transition, said, “No policy should be deemed official
unless it comes directly from President Trump,” in response to questions about a potential Trump administration
plan to privatize Fannie and Freddie and its possible effect on mortgage rates.
Many Americans already have whiplash after recent swings in mortgage rates: After the average 30-year fixed
mortgage rate peaked at nearly 8% last fall, rates fell steadily ahead of the Federal Reserve’s first interest rate
cut in September. That trend has since reversed, and mortgage rates have climbed back up to nearly 7% as
investors bet that the Fed will cut rates fewer times than initially expected due to recent strong economic data.
Last week, Trump doubled down on his promise of massive tariff hikes on goods from Mexico, Canada and China
starting the first day of his administration. Most mainstream economists believe those tariffs will stoke inflation,
meaning that borrowing rates will likely stay higher for even longer.
Potential complications
Fannie and Freddie don’t directly issue mortgages to borrowers. Their aim is to buy mortgages from lenders
and repackage them for investors. This helps enable a reliable flow of money to mortgage lenders, allowing
them to offer more affordable rates to would-be homebuyers.
During the housing meltdown of 2008, the two companies were brought under government control in an effort
to stabilize the housing market. Ever since, they have been overseen by the Federal Housing Finance Agency.
The two companies’ ability to effectively operate has propped up the 30-year fixed mortgage, the most popular
home loan type due to its relatively lower monthly payments that stay the same over a 30-year period. Without
the government backing of Fannie and Freddie, bond traders might deem their mortgage-backed securities
riskier investments.
“As a politician, the last thing you’d want to do is cause problems when the problems don’t exist,” Tozer said.
“To have a hiccup occur and all of a sudden credit becomes more costly or people can’t get a mortgage at a
reasonable rate, I don’t think any politician wants to face those unintended consequences.”
“The law says they are eventually to be privatized,” she said. “But the stakes are very, very high as to how
this is carried out.”
If the government were to charge a fee to Fannie and Freddie for the guarantee of a bailout in another crisis,
some of the mortgage market swings from going private could be mitigated, Wachter said.
“I do believe they can be privatized with a government commitment fee,” she said. An additional fee could
be passed to the consumer, raising the cost of mortgages, though that depends on how the privatization
is carried out, Wachter said.
Some analysts advocate for full privatization, meaning the government would not provide assurances to
backstop the two mortgage companies. Norbert Michel, a director at the libertarian think tank the CATO
Institute, has argued such government backing stifles competition.
“In a private market, as opposed to a government-controlled market, you’re going to have more widespread
opportunities for everybody, whether it’s businesses coming in or people on the consumer side — and that’s
what you want,” he said.
Hopes of Fannie and Freddie privatization
Fannie Mae’s and Freddie Mac’s stocks both surged after Trump’s electoral victory, indicating that investors
believe Trump will renew his efforts to privatize the companies.
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“My Administration would have sold the government’s common stock in these companies at a huge profit and
fully privatized the companies,” Trump wrote in a 2021 letter after he left office to Republican Sen. Rand Paul.
“My Administration was denied the time it needed to fix this problem.”
Some of Trump’s supporters, including Bill Ackman, the billionaire hedge fund manager at Pershing Square
Holdings, are invested in the two companies and stand to potentially make millions of dollars if they
are spun off.
“The U.S. Presidential election in November 2024 may present the opportunity for a change in the status
quo,” Pershing Square’s 2023 annual investor letter said. “The Trump administration had begun the process
of releasing Fannie and Freddie from conservatorship, a process which would likely be completed in a
future Trump administration.”
But the way the Trump administration may usher in a new era of housing market finance, whether it be
privatizing Fannie and Freddie with the promise of government backing or a separate plan entirely, will
make all the difference.
“It’s going to be the big challenge walking this fine line because it’s been more than 15 years of this
conservatorship,” Tozer said.
Rodney5
11 horas hace
70,000 foreclosure’s vast majority were delinquent before pandemic. Fannie and Freddie had minimal losses.
Pandemic Mortgage Forbearance Design: A Practitioner’s Perspective
By Mark A. Calabria
Highlights
“ Requiring borrowers to pay back any forbearance”
“ While politicians might prefer giveaways to all, we did not have that option (not that we would have pursued it if we had).”
“ Fannie and Freddie are private companies, even if chartered by Congress and in conservatorship. Appropriately, there was no broader public expectation that private companies should voluntarily suffer losses or give away their products for free because of COVID. Fannie and Freddie operated under the same set of rules.”
“ For policymakers, the solution to this problem is to provide borrowers with loan forbearance, not forgiveness. Forbearance gives borrowers a “time-out” on their monthly payment, allowing them to add missed payments back into their loan balance so the money will eventually be repaid.”
The FHFA Plan
“ When Congress later codified our plan into statute as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the maximum assistance period was fixed at 12 months.”
“ Whether it would have been better to just forgive rent and mortgage payments was a question far outside our scope at the FHFA. Most importantly, we did not have the legal authority to do so. It would have to be the decision of Congress, not us.”
“ FHFA’s first responsibility was to oversee the safety and soundness of Fannie, Freddie, and the Federal Home Loan Banks. Forcing any of the entities into massive losses would have been the exact opposite of our legal responsibilities.”
“ Fannie and Freddie borrowers had significant equity in their homes. Less than 1 percent of Fannie and Freddie forbearance borrowers had loan-to-value ratios over 97 percent. The typical mortgage holders in forbearance had 20 to 30 percent equity in their homes. That is, they had the ability to pay back any paused mortgage payments.”
“ Results / Ultimately, about 8 million borrowers—roughly 1 in 10 homeowners—entered mortgage forbearance during COVID. By 2022, over 90 percent of them would exit forbearance, getting back on their feet, at least in relation to their mortgage.”
“ Still, more than two years later, just under half a million borrowers who entered COVID forbearance remain behind on their mortgages. Over 70,000 of those have entered foreclosure. It should be noted that the vast majority of those were delinquent before the pandemic, but others have been unable to recover lost jobs or income.”
Link: https://www.cato.org/regulation/spring-2023/pandemic-mortgage-forbearance-design-practitioners-perspective
Regístrate para obtener gráficos en tiempo real, herramientas de análisis y precios.
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