Reform plan for housing finance giants

The Trump administration wants Congress to remove the federal charters for Fannie Mae and Freddie Mac as part of a plan to release the mortgage giants from U.S. control, according to a sweeping proposal for reorganizing the government released Thursday.

The two companies, which have been under U.S. conservatorship since 2008, could have their market dominance challenged by new competitors under the plan. Fannie, Freddie and any rivals would be overseen by a government entity with power to approve guarantors, change regulations and ensure market participants are adequately capitalized, the report said.

The changes, which are subject to congressional approval, would give Fannie, Freddie and their competitors access to an explicit guarantee on mortgagebacked securities that would be accessible only in “limited, exigent circumstances,” according to the report.

“Taxpayers would be protected by virtue of the capital requirements imposed on the guarantors, maintenance of responsible loan underwriting standards, and other protections deemed appropriate by their primary regulator,” the report said.

Fannie preferred shares rose 5%, and Freddie’s climbed 4%.

Fannie and Freddie don’t make loans themselves. They buy them from lenders, wrap them into securities and make guarantees to make investors whole if the loans default.

Federal regulators took over the two companies during the 2008 financial crisis, eventually injecting them with $187.5 billion in bailout money. They have since returned to profitability and paid the government more in dividends than they got in aid. Still, some members of Congress and other policymakers have said the companies should be replaced with a system that doesn’t leave taxpayers on the hook for losses.