The Trump Administration has stated it wants to find Fannie Mae and Freddie Mac out of government control, however in the meantime it’s not being bashful about trying to use revenue in the U.S.-backed mortgage guarantors to decrease the deficit.
In its 2019 spending plan published Monday, the administration asked Congress to raise the fees Fannie and Freddie bill to back payments on mortgage-backed securities by 0.1 percentage point, a move that it said would reduce the federal budget deficit by $25.7 billion over the next ten years.
The funding plan, while unlikely to be implemented by Congress, provides at least a small window into the way the administration thinks about the future of Fannie, Freddie and the rest of the housing-finance system. It shows that administration officials want to decrease the government footprint at the mortgage market and pull back on funding for affordable housing.
To help pay for a payroll tax reduction during the recession, Congress advised Fannie and Freddie to bring a 0.1 percentage point fee to the guarantee fees, which are paid by debtors. That increase is set to expire in 2021.
President Donald Trump’s funding request would expand the increase to 2023, while also raising it to 0.2 percentage point. It also calls for Fannie and Freddie to stop allocating cash to trust funds used to help promote affordable housing.
More than a year into the administration, the Treasury Department has shown little about exactly what it wants to see happen with Fannie and Freddie. Recently, Treasury officials have stated they want to use Congress on housing-finance reform legislation, though in a recent hearing, ” Treasury Secretary Steven Mnuchin acknowledged that he’s authority to implement some reforms without Congress.
Personal shareholders of Fannie and Freddie stock, including some notable hedge funds, have pushed to the Trump administration to proceed to release the companies from government control without Congress. But when the administration has any such plans, they’re not represented in the funding.
Mnuchin and other Treasury officials have stated that one of their goals is to increase the number of mortgages made which urge’t have backing from Fannie, Freddie or alternative government-linked agencies. The personal mortgage market, other than for high-balance jumbo mortgages, has been moribund since the fiscal crisis.
A funding document released Monday said the administration considers increasing Fannie’s and Freddie’s fees “would help level the playing field for lenders. ”
Although Congress isn’t planning to apply the proposals, they could indicate steps the Trump administration may take as soon as they appoint a new manager of the Federal Housing Finance Agency, Cowen analyst Jaret Seiberg stated in a research note on Monday. The FHFA, that controls Fannie and Freddie, until 2019 is helmed by Mel Watt, an Obama appointee.
“Even though specifics in the budget will probably not materialize, it does reinforce our opinion that a Trump FHFA manager will curtail what Fannie and Freddie do absent GSE reform,” Seiberg wrote.
Under the terms of their bailout arrangements, Fannie and Freddie send almost all their gains to the national authorities, while the Treasury provides the companies with cash when their net worth falls below zero. The companies, that report fourth-quarter and full-year financial results this week, may need to draw on that service for the first time since 2012 because of the tax cuts signed into law in December. The companies have resources they can use to offset taxes which became less valuable as a consequence of the tax reduction, resulting in a one-time hit to earnings.
In its funding plan, the administration said it anticipates that issue to result in draws of about $5.1 billion, according to publicly available information. Fannie intends to report earnings on Wednesday, while Freddie reports on Thursday.
The Trump administration also said it anticipates Fannie and Freddie to cover the government almost $185 billion over the next ten years.
The budget stated that the administration still wants to use Congress on housing-finance reform and stated such reform would affect its own projections.