Fannie, Freddie Will Need Rules To Avoid 'Race To Bottom,' Housing Nonprofit Cautions
An affordable housing nonprofit is warning the precarious mortgages that sparked the 2008 global financial crisis could return if regulatory safeguards are not kept in place as Fannie Mae and Freddie Mac move away from conservatorship.
The National Housing Conference is calling for the enshrinement of protections, adding that not doing so risks “a race to the bottom” amid the Trump administration's plans to remove the agencies from government supervision.
The NHC is also advocating for proceeds from any sale of the agencies to be prioritized for affordable housing.
“The path to meaningful housing finance reform remains one of the most consequential — and unfinished — legacies of the financial crisis,” the NHC wrote in a paper published Tuesday.
“The transition out of conservatorship should be deliberate, transparent, and supportive of the affordable housing market, leveraging existing regulatory authorities where possible and engaging stakeholders across the housing ecosystem.”
Fannie and Freddie have been overseen by the Federal Housing Finance Agency since Congress established it following the housing market collapse in 2008.
The Trump administration has flirted with the idea of taking the agencies public for months. A privatized Fannie and Freddie could still have public backing, as President Donald Trump said in May that the federal government would continue to guarantee the loans packaged and sold by the agencies should his administration move forward with a stock offering.
The potential windfall from such a move has inspired Wall Street investors like Pershing Square Capital Management’s Bill Ackman to buy into the firms, Bloomberg reported.
The NHC said bipartisan cooperation would be needed to ensure systemic stability and get the best taxpayer returns possible.
While proceeds from the sale of government-sponsored enterprise stock are currently required to be used to reduce the federal deficit, the NHC said that could be changed. The nonprofit suggested alterations to the terms of the Preferred Stock Purchase Agreements could allow those funds to be used on affordable housing without congressional approval.
NHC states the U.S. could be as much as 5.5 million units short of single-family and rental housing.
The nonprofit also suggests changing board governance of Fannie and Freddie so that its members have a fiduciary responsibility to the shareholders of the companies.
“Without an independent board of directors with fiduciary responsibility to the shareholders, the value of shares in a secondary offering would be significantly diluted and potentially eliminated entirely,” the nonprofit states. “As proceeds from early sales increase enterprise capital, and the size of the sales is managed to maximize earnings, the value of the shares could rise with each issuance.”
Officials with the Trump administration have said a public offering of Fannie and Freddie stock could raise as much as $30B to help seed a U.S. sovereign wealth fund.
