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Democrats demand details of Trump plan to release mortgage giants from federal control

The Freddie Mac headquarters building in McLean, Va., Saturday, April 21, 2018. (AP Photo/J. David A
The Freddie Mac headquarters building in McLean, Va.
(J. David Ake / Associated Press)

Congressional Democrats, concerned the Trump administration is going it alone to pursue sweeping changes to housing finance policy, demanded more details on reports that the Treasury Department is formulating a plan to release Fannie Mae and Freddie Mac from federal control.

The scrutiny from House Financial Services Committee Chairwoman Maxine Waters and Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee, follows statements from a Trump-appointed regulator about ending the mortgage giants’ decade-long conservatorships.

Joseph Otting, the acting head of the companies’ regulator, told Federal Housing Finance Agency staff at a private meeting last week that the Treasury Department and the White House will soon release a proposal, which could benefit hedge funds that own large chunks of shares. At the meeting, Otting reiterated that Treasury Secretary Steven T. Mnuchin wants Fannie and Freddie released and that during his stint at FHFA, Otting intends to make progress toward that goal, the FHFA said in a Jan. 18 statement.

Mnuchin told Bloomberg during a Dec. 18 roundtable interview that it was his “preference” that the two quasi-public institutions exit conservatorship, though it was his preference that it be done with “bipartisan legislative support.”

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“My overall view is on the one hand, I want to make sure there’s access to liquidity and capital for consumers,” Mnuchin said. “On the other hand, I want to make sure whatever we do in restructuring them, we don’t put the taxpayer at risk.”

Fannie and Freddie are crucial to the U.S. housing market. The companies buy mortgages from lenders, package them into securities and make guarantees to bond investors in case borrowers default.

The U.S. took control of them in 2008, injecting them with $187.5 billion in the wake of the financial crisis and then with another $4 billion to help them deal with an adverse effect of President Trump’s tax cuts. The companies have become profitable and paid taxpayers about $279 billion, which doesn’t count as repaying the bailout.

A bipartisan effort last year by then-Sen. Bob Corker (R-Tenn.) and Sen. Mark R. Warner (D-Va.) to end government control died last spring.

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The duo tried to develop a bill that would have largely preserved the operations of Fannie and Freddie while opening the market to new competition. That effort foundered after failing to win support from progressives, who wanted to preserve the companies’ affordable-housing mandates, leaving them not enough time to reach a compromise before November’s midterm election.

“My sense is that these institutions may well stay in conservatorship for some time,” Corker said at the time, adding that he believed the Trump administration might take some sort of action.

Waters (D-Los Angeles) and Brown (D-Ohio) wrote in a Friday letter to Otting, who is leading the FHFA until a permanent nominee is confirmed by the Senate, “To date, we have not seen a comprehensive statement from the White House and Treasury Department under the Trump administration providing their views on regulation of the housing-finance system.

“Your comments call into question the independence of the FHFA under your leadership,” the letter went on to say.

Waters and Brown asked Otting to provide them with “a detailed description of the mission that Treasury and the White House” have for housing-finance policy by Feb. 1. An FHFA spokeswoman confirmed that the agency received the letter.

Speculation that Otting, who also leads the Office of the Comptroller of the Currency, and Mnuchin might take action on Fannie and Freddie has spurred a recent stock rally, with both companies more than doubling this year. Fannie rose 0.34% to $2.98 in New York trading Friday, while Freddie gained 1.41% to $2.87.

Hedge funds, including Paulson & Co. and Pershing Square Capital Management, have been fighting the government for years over a 2013 decision by the Obama administration to send nearly all of Fannie and Freddie’s earnings to the Treasury.

The funds, which own shares in the companies, would be poised to make substantial profits if the conservatorships ended.

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