WASHINGTON — President Donald Trump ordered federal regulators earlier this week to develop plans to change the way the country finances the majority of its home purchases.
The plan could upend decades of housing policy while finally reckoning with a major piece of unfinished business from the financial crisis — the fates of Fannie Mae and Freddie Mac, the housing finance giants that back more than half the mortgages written in the United States.
The two companies, which buy mortgages from lenders, then package them into securities to sell to investors, have been under government conservatorship for 10 years after receiving billions in taxpayer bailouts.
Lawmakers have been wary of tinkering with their structure, fearing that a wrong move could disrupt the housing market and the availability of 30-year mortgages, the most popular way home purchases are financed in the United States.
Trump signed a presidential memorandum Wednesday, directing the Treasury Department to develop a plan that would end Fannie’s and Freddie’s government conservatorships and improve oversight of the companies, which have trillions of dollars’ worth of assets.
Trump also instructed the Department of Housing and Urban Development to submit a plan to change the operations of other parts of the housing system, including the Federal Housing Administration, which helps low-income and first-time buyers.
“The lack of comprehensive housing finance reform since the financial crisis of 2008 has left taxpayers potentially exposed to future bailouts,” the proclamation says.
“The housing finance system of the United States is in urgent need of reform.”
The president’s directive comes amid growing expectations within the housing industry that the Trump administration unilaterally would release the companies from government control if Congress doesn’t act.
Treasury Department officials have been meeting with industry and consumer groups over the past few weeks to identify potential sticking points to any reworking, according to several people familiar with the meetings.
“We support a system that provides for access to lending for hardworking Americans, while also protecting taxpayers from risk,” Treasury Secretary Steven Mnuchin said in a statement.
Sen. Mike Crapo, R-Idaho, chairman of the Senate Banking Committee, has also developed a plan to allow Fannie and Freddie to become private companies again and held two-days of hearings on the issue this week.
But legislation to reform the companies repeatedly hasn’t gained enough support in Congress, and the topic may be too complicated to tackle this close to the 2020 presidential election, industry experts have said.
The debate comes at a sensitive time in the U.S. housing market.
Home prices and sales largely have recovered from the housing bust, but the market has slowed as mortgage rates have started to rise.
The government seized control of Fannie and Freddie in 2008 as the housing market unraveled, and the companies’ losses piled up as homeowners defaulted on their mortgages. Taxpayers pumped billions into the companies.
Over the past few years, however, Fannie Mae and Freddie Mac have been accumulating profits that feed into government coffers.
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Since 2008, they have received $191.4 billion from taxpayers and paid back $285.8 billion in dividends to the U.S. Treasury.