Newspaper article St Louis Post-Dispatch (MO)

Re-Privatizing Mortgage Giants Risks Re-Establishing a Flawed System

Newspaper article St Louis Post-Dispatch (MO)

Re-Privatizing Mortgage Giants Risks Re-Establishing a Flawed System

Article excerpt

The bank bailout has been unwound and General Motors is back on its feet, but one piece of business from the financial crisis remains unfinished.

Mortgage giants Fannie Mae and Freddie Mac, two of the crisis' highest-profile casualties, remain under government control even though the housing market has healed and both companies are profitable.

On Thursday, one day short of the 11th anniversary of the firms' government conservatorship, the Trump administration announced a plan to re-privatize Fannie and Freddie and reduce the government's role in housing finance.

Some steps in the plan, such as providing an explicit guarantee of the companies' securities, would require an act of Congress but others can be done by executive action. Treasury Secretary Steven Mnuchin said Monday that he expects to take a key step soon by letting the firms keep some of their profits, which have been swept into the Treasury since 2013.

Fannie and Freddie don't make loans themselves, but they purchase and package nearly half of all U.S. mortgages. Critics, including Democratic senators, have said the administration's proposals would increase borrowing costs for homeowners.

"Apart from trying to find a way for some investors to make more money, it's hard to see what the benefits of this are," said Dean Baker, a senior economist at the Center for Economic and Policy Research.

The administration's plan would reward hedge funds who have bought the companies' common and preferred stock, all of which was nearly worthless back in 2008. Shares of both companies surged Monday after an appeals court panel ruled that the current profit sweep is illegal.

Baker worries that the plan to end government control of Fannie and Freddie is more about politics than sound policy. "These aren't just hedge funds, they are hedge funds that are very close to people in the Trump administration," he said. …

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