Homeowners fear a Trump administration plan to return federal mortgage lenders Fannie Mae and Freddie Mac to the private sector will increase the cost of mortgages and make it harder for low-income and disadvantaged communities to buy homes.
Fannie Mae and Freddie Mac are the government-controlled companies that help raise money for the US housing market by buying mortgages and packing pools of loans for sale to investors. The two companies combined returned nearly half of the country's $ 11 trillion loan market, according to the New York Times.
The two once publicly listed private companies were placed in conservatorship and put under government control by the Bush administration during the 2008 financial crisis after a plethora of housing loans that had gone bad had both undermined and taken the US economy along.
It required government control at a cost of around $ 200 billion. On the other hand, since 2008 Fannie Mae and Freddie Mac have had to send their profits to the US Treasury, adding a tidy sum to the government coffers.
Now, in a 49-point proposal, the Trump administration recommends having Fannie Mae and Freddie Mac stand on their own, thus limiting the federal government's role in obtaining mortgage loans. The plan also requires allowing more private competition in the mortgage market, explains the Times.
By doing so, administration officials say, will "lower mortgage rates. Officials say it would promote affordable housing and protect taxpayers from saving Fannie and Freddie in the event of a new housing crash, "reports the Times.
But Consumer Protection and Fair Housing advocates say they will return Fannie Mae and Freddie Mac to the private sector give Wall Street too much control over the prospects of housing on Main Street.
"For working-class Americans who want to buy a home, this can make it much more difficult to get a mortgage and make the mortgage much more expensive," said Mike Calhoun , president of the nonprofit Center for Responsible Lending, to NPR.
Calhoun expressed concern that privatization could allow the Trump administration to "introduce new rules for home buyers that would be too strict, such as requiring larger payouts to qualify for a State-backed mortgage, "according to NPR.
An example of such a change is one that will particularly affect the reasonable housing investment in cities like New York that have rent control laws.
As explained by the Times, the administration
[overhaul] wants federal affordable housing requirements and [set] restrictions that may discourage [Fannie Mae and Freddie Mac] from investing as much in mortgage loans for condominiums in areas like New York that have implemented rent control laws. The administration says such laws are hampering housing development, and the report asks regulators to return to Fannie's and Freddie's standards for buying multi-family homes in rent-controlled areas, arguing that "scarce government subsidies should not be used to offset the negative effects of these laws. "
Nikitra Bailey, executive director of the Center for Responsible Lending, told the Times that the Trump plan could raise the mortgage rate for" all borrowers ": those in the countryside, low and moderate incomes, as well as communities of color that are already struggling to find affordable housing.
"The administration says it is trying to save taxpayers from the risk of another future catastrophic breakdown, but that is essentially transferring the system to Wall Street," Bailey said.
As the Times points out:
Privatization can also cause a fall for hedge funds and other investors who bought Fannie Mae and Freddi e Mac stock after the crisis [financial] for a penny, and then pushed the administration to speed up the process.
But even Wall Street didn't seem as impressed with the Trump plan, which was vague in details as to how the two companies would get the money they needed to stay private again.
As Barron's reports, on Friday, shares of both Fannie and Freddie were down, 14 percent and 12 percent, respectively.