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Former members of the Trump administration along with figures from the banking industry have been working on plans to free Fannie Mae and Freddie Mac from federal government control, according to a report Friday in The Wall Street Journal.
Talks about the issue have been taking place since at least the spring, The Journal reported. Unnamed sources in the report indicated that the talks have included Larry Kudlow and John McEntee, former director of the National Economic Council and former director of the White House presidential personnel office, respectively. The report did not say who from the banking sector has participated in the talks.
Fannie Mae and Freddie Mac were placed into government conservatorship in 2008, as potential losses from the subprime mortgage meltdown mounted. After the companies repaid the $191 billion taxpayer bailout provided during the housing crash, plus interest, debate about how they should operate in the future continued.
As president, Donald Trump began the process of “recapitalizing” the companies. However, Democrats derailed the plan to privatize Fannie and Freddie after Trump lost the 2020 election — prompting an exodus of top executives from both companies. Nevertheless, privatizing Fannie and Freddie has remained a priority for some conservatives.
The talks have reportedly explored various options, one of which would involve using the Federal Housing Finance Agency and bypassing Congress. Another option could involve using the Treasury Department to partially buy some Fannie and Freddie loans, according to The Journal’s report. The report also states that one of the priorities of bankers and former Trump officials in their discussions is to ensure that Fannie and Freddie remain well-capitalized so as not to threaten the housing market.
As of June 30, Fannie and Freddie’s combined net worth was $139.7 billion, up 11 percent from $125.4 billion at the beginning of the year. Former Freddie Mac CEO Donald Layton has estimated that Fannie and Freddie could be considered recapitalized when their combined net worth hits $150 billion.
But the actual amount needed would depend on how the mortgage giants might be structured when released from the conservancy and how much of a backstop the government would provide.
Trump’s opponent in the November election, Vice President Kamala Harris, claimed at a campaign event last month that privatizing Fannie Mae and Freddie Mac could add $1,200 a year in additional interest costs to the typical American mortgage.
