Business

Steve Mnuchin hints at Fannie-Freddie changes to end U.S. state control

Bloomberg

The Trump administration wants to work with Congress on freeing Fannie Mae and Freddie Mac from government control, though it’s considering pursuing some changes on its own, Treasury Secretary Steven Mnuchin said Tuesday.

“I would like to get them out of conservatorship,” Mnuchin said during a roundtable interview at Bloomberg’s Washington office. “My preference would be to do something that has bipartisan legislative support.”

Fannie and Freddie rose after Bloomberg reported the Treasury secretary’s comments.

Mnuchin didn’t specify on what Treasury might do unilaterally, though he indicated that securing Senate confirmation of a new Federal Housing Finance Agency director will be key to the administration’s efforts.

The FHFA, which regulates Fannie and Freddie, has significant sway over the $10 trillion U.S. mortgage market. The White House has said President Donald Trump plans to nominate Mark Calabria, Vice President Mike Pence’s chief economist.

“There are changes we will be able to make with a new director at the FHFA,” Mnuchin said.

Fannie rose 5.2 percent to $1.16 at 3:59 pm in New York Trading, while Freddie climbed 4.8 percent to $1.14.

Fannie and Freddie have spent more than a decade under the government’s thumb with no end in sight. The U.S. took over the mortgage-finance giants during the 2008 financial crisis, eventually injecting them with $187.5 billion as the housing market tanked. The companies have since become profitable again, and have paid about $279 billion to the U.S. Treasury in dividends that don’t count as repayment.

Hedge funds that own Fannie and Freddie shares may be pleased by Mnuchin’s comments. Such investors have urged Treasury to bypass lawmakers, arguing that the Trump administration should allow the companies to build up capital buffers to protect against losses and then release them to private investors. That would require Treasury selling its massive stakes in Fannie and Freddie.

At the same time, hedge funds have been fighting the government for years over the Obama administration’s 2012 decision to hoard nearly all of the companies’ earnings.

Fannie and Freddie don’t lend. Instead, they fuel the mortgage market by buying loans from banks, packaging them into securities and making guarantees to investors in case borrowers default.

Mnuchin has repeatedly said that addressing Fannie and Freddie is a priority for the Trump administration, though Treasury hasn’t outlined a specific plan. Earlier this year the White House released a proposal directing Congress to remove Fannie and Freddie’s charters and end the conservatorships.

“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.”