This ARTICLE On President Trump To Privatize Fannie Mae And Freddie Mac Mortgage Markets Was PUBLISHED On September 6th, 2019
Fannie Mae and Freddie Mac are the two mortgage giants in the United States.
- Fannie Mae and Freddie Mac set the lending standards on conventional loans
- Conventional loans are often referred to as conforming loans
- This is due to the fact conventional loans need to conform to Fannie Mae and/or Freddie Mac Lending Guidelines
- Conventional Loans are not government loans
- So why do conventional loans need to conform to Fannie Mae and/or Freddie Mac Conforming Guidelines?
- The reason is both Fannie Mae and/or Freddie Mac will not purchase conventional loans originated and funded by a bank and/or private lender if they do not conform to their guidelines
- Lenders use their own money to fund home loans
- They use their warehouse lines of credit to originate and fund mortgages
- Once the conventional loan, if funded, they sell them on the secondary market to Fannie Mae and/or Freddie Mac
- Fannie/Freddie only buys loans that conform to their guidelines
In this article, we will discuss the breaking news of President Trump To Privatize Fannie Mae And Freddie Mac.
The Roles Of Fannie Mae And Freddie Mac
Both Fannie Mae and Freddie Mac were created by the U.S. Congress.
- The roles of Fannie Mae and Freddie Mac is to provide mortgage market liquidity, stability, and most importantly, affordability to lenders and borrowers in the U.S.
- The most important role of Fannie Mae and Freddie Mac is to provide access to funds to the countless financial institutions such as banks, credit unions, and mortgage lenders who originate and fund home loans
- This task is accomplished by both Fannie and Freddie buying mortgage loans from registered and licensed mortgage companies
- Fannie Mae and Freddie Mac will either hold the mortgages they purchase on the secondary market in their investment portfolios and/or bundle them up as mortgage-backed securities (MBS) and sell them in the public market to investors and financial institutions
- By buying the mortgages from lenders, the lenders get their warehouse lines of credit relieved to repeat the process and originate and fund more loans
This enables hard-working individuals and families to purchase homes. By relieving lenders to pay down their warehouse lines of credit, lenders can always have a steady stable supply of funds to fund more loans.
Liquidity For Mortgage Companies
Fannie Mae and Freddie Mac work closely with investors of the secondary mortgage markets in selling them mortgage-backed securities.
- If it were not for Fannie Mae and/or Freddie Mac, these investors would not purchase mortgage securities
- This process allows lenders to always have an ample supply of funds to fund more loans for real estate financing at low rates for homeowners
- Another role of Fannie Mae and Freddie Mac is to keep the mortgage markets in line and stabilize it when it is needed in times of turmoil and stress that may threaten the housing market and overall economy
Many wonder what Trump To Privatize Fannie Mae And Freddie Mac will do for the average U.S. consumer. We will discuss the potential results of President Trump To Privatize Fannie Mae And Freddie Mac.
News Of President Trump To Privatize Fannie Mae And Freddie Mac
On Thursday, September 5th, 2019, The U.S. Department of Treasury announced its plans in making changes to the U.S. Housing and Real Estate Markets.
- One of the main factors in accomplishing this task is for releasing control of Fannie Mae and Freddie Mac by the government
- This means privatizing Fannie Mae and Freddie Mac
- Fannie Mae and Freddie Mac are the two mortgage giants in the U.S. responsible for backing over 50% of the mortgages in the U.S.
- Both Fannie and Freddie have been under government conservatorship since the 2008 real estate and financial crisis
- President Trump To Privatize Fannie Mae And Freddie Mac allows the two Government Sponsored Enterprises (GSE) to be privatized again like it was prior to the 2008 Housing Bubble Crash
- The government will collect a fee for its role in protecting the two mortgage giants
- Congressional approval is not needed on Trump To Privatize Fannie Mae And Freddie Mac
Karen Cordes, the Director of Underwriting and Operations at Gustan Cho Associates Mortgage Group issued the following comment after hearing the news:
The plan doesn’t detail what will happen to the government’s stakes in the firms or how they will build their capital up enough so they can go private again. In my opinion, housing prices continue to rise across the country. The privatization of Fannie Mae and Freddie Mac will protect taxpayers and help Americans who want to buy a home.
There are mixed emotions about this breaking news on privatizing Fannie/Freddie. Democrat Ohio Senator Sherrod Brown is an opponent of privatization and issued the following statement:
Telling American taxpayers that the plan will make mortgages more expensive and harder to get is deceptive and misleading It will make Americans harder to buy a home. I’m urging President Trump: Make it easier for working people to buy or rent their homes, not harder.
What Are The Effects Of Trump To Privatize Fannie Mae And Freddie Mac
The majority of mortgage professionals and experts welcome the privatization of Fannie Mae and Freddie Mac and its release from conservatorship. Leading economist and housing analysts agree the government to postpone the privatization until policy reforms have taken placed and mastered.
Mike Gracz, the National Sales Manager at Gustan Cho Associates said the following:
This is likely because under the current state of housing policy, experts believe there would be a largely negative effect on the consumer (and therefore the health of the housing market) if the GSEs were to be privatized. Under their federal status, the GSEs enjoy a number of significant benefits that would be eliminated if privatized. Local and State tax exemptions, lower federal borrowing costs, and the market premium placed on their federally backed securities would all disappear and create a situation where capital costs would increase. Experts predict that these increased capital costs would be passed on to consumers in the form of increased mortgage costs. While a family at the higher end of the wealth spectrum may not feel this change, low and moderate-income families would likely see their purchasing power take a hit. Another significant factor to think about would be the fate of the most popular mortgage product in the country today: the 30-year, fixed-rate, pre-payable mortgage. Experts predict this product would likely fade away as private lenders would be averse to taking on the risk associated with this type of mortgage.
Dale Elenteny, a Senior Vice President at Gustan Cho Associates was upbeat with the news and issued the following statement:
On the positive side of the ledger, experts suggest that privatization would allow Fannie and Freddie to investigate merging with other primary mortgage actors. This would give Fannie and Freddie the ability to expand their activities and create efficiency gains. So the question now becomes: will this even happen? I give it a 50-50 chance that the conservatorship can get kicked down the road to the next administration. Eventually though, it will happen. With so much at stake for the housing industry, it’s no wonder that insiders would prefer to see policy reform and a framework put in place first.
This is a developing story. This breaking news caught everyone by surprise. We will keep our viewers informed as more news develops.