Fannie Mae and Freddie Mac Release From Conservatorship Could Serve as Budget Booster for President Trump
President Donald Trump could benefit from releasing Fannie Mae and Freddie Mac from conservatorship by reducing government involvement in financial markets and creating room for tax cuts. However, the process of ending government control over the mortgage giants is complex.
The government has invested $190 billion in Fannie Mae and Freddie Mac since 2008, with potential additional revenues of $200 billion from Treasury Department stock warrants. While the government may save money by reducing its role in mortgage guarantees, some industry experts argue for continued government backing to prevent mortgage rate increases.
Congress is hesitant to provide explicit guarantees for Fannie and Freddie issuances, with Fitch Ratings emphasizing the importance of ongoing government support for maintaining their credit rating post-conservatorship. The potential impact on the $11 trillion MBS market and the need for budget offsets for tax cuts make the release of Fannie and Freddie a priority for the Trump administration.
The process of releasing Fannie and Freddie involves complex legislative hurdles, with reconciliation rules governing the budget process. Assessing the cost implications of ending conservatorship is challenging, with conflicting views from the CBO and OMB. While there are technical and political questions to address, the Trump administration’s ability to formulate a plan for release within the budget cycle remains uncertain.
Despite ongoing efforts to strengthen Fannie and Freddie’s capital position, challenges in the housing finance market may complicate the release process. Rising mortgage rates and affordability concerns underscore the importance of careful planning to avoid disrupting the housing market.
In conclusion, the release of Fannie Mae and Freddie Mac from conservatorship presents potential benefits for President Trump’s budget agenda, but the complexities and uncertainties surrounding the process require careful consideration to ensure a smooth transition.