Trump's Fannie, Freddie overhaul on the way: What to know

Americans might soon learn how the Trump administration wants to reform the housing finance system.

The administration is expected to release its plan to overhaul mortgage giants Fannie Mae and Freddie Mac as soon as the beginning of next month, people familiar with the matter told The Wall Street Journal.

The plan will reportedly detail how the administration would remove the government-sponsored entities (GSEs) from conservatorship – a long-time goal of the Trump administration – if Congress doesn’t overhaul them in the meantime.

Sources told the Journal that the blueprint will include plans to make sure the entities have enough capital to absorb losses, before returning operations to the way they were before the financial crisis. It is not expected to address a potential initial public offering (IPO).

A broader overhaul of the housing finance system to create more competition, however, would likely require action from Congress.

“I’m expecting that Treasury and the administration will lay out their vision of what they think Congress should do, what they think I should do and what they think the Treasury and I should be able to do together in terms of amendments to the share agreements that allow an exit out of conservatorship,” Federal Housing Finance Agency Director Mark Calabria told HousingWire.

The administration’s other reform goals include improving access to sustainable mortgages, preserving the 30-year fixed-rate mortgage and enabling access to federal housing programs to help finance the purchase of first homes.

It has been more than a decade since Fannie and Freddie were taken into conservatorship. They have been operating within the government since being bailed out for nearly $200 billion at the height of the financial crisis.

The two government-sponsored enterprises do not originate loans – instead they purchase and guarantee them on the secondary market.

President Trump directed the Treasury Department and Department of Housing and Urban Development to develop policy recommendations for ending the conservatorship of Fannie and Freddie in March.

Privatizing the entities has been a longtime goal of U.S. Treasury Secretary Steven Mnuchin, who told FOX Business in November 2016 that the administration had to “get them out of government control.”

Taking Fannie Mae and Freddie Mac out from under government control could be a boon to shareholders – who have essentially had shares wiped out. As of 2012, profits from Fannie and Freddie have been redirected to the U.S. Treasury, in what’s known as a net worth sweep. Some hedge funds, however, have been betting on their return to the private sector.

Calabria told FOX Business in May that he’s considering an IPO of Fannie and Freddie as early as the first half of 2020 in order to raise capital.