Could Trump's privatization plan for Fannie Mae remove the 30-year mortgage?

The Trump administration unveiled Thursday its long-awaited plan to recapitalize Fannie Mae and Freddie Mac, the government-backed mortgage giants responsible for much of the $ 5 trillion mortgage industry. dollars, with a potentially profound impact for millions of future buyers.

After spending $ 187 billion to bail out Fannie Mae and Freddie Mac during the 2008 financial crisis, the government is now looking to reduce its role in both entities, which have been taken over by taxpayers to mitigate the financial crisis. real estate market crash after excessive risk taking during the subprime mortgage crisis.

But bringing Fannie and Freddie back to private property could have a negative effect on homebuyers, especially junior, low-income, minority and rural borrowers, said Adam Levitin, a Georgetown University Law Center professor who studies bankruptcy. and consumer credit.

"The Administration's proposal will increase the cost of mortgages for all borrowers, especially families of color, low to moderate income families and rural families whose income growth has been outpaced by housing costs. homes and rental markets across the country, "A civil rights coalition said Thursday in a joint statement.

Although Fannie and Freddie do not offer loans themselves, they buy them from banks and lenders. Without the government support that Fannie and Freddie provide, financial institutions are less likely to extend credit to long-term homebuyers, fearing default. This means that the popular 30-year fixed rate mortgage could become inaccessible to some homebuyers, as lenders prefer fixed or adjustable rate mortgages, Levitin said.

The Treasury's plan presented to the White House indicates that he is supportive of preserving the 30-year fixed-rate mortgage, noting in his 53-page statement of principles that he allow financial institutions to retain more of their profits, foster competition and protect taxpayers.

"The Trump administration is committed to promoting the vital reforms of the housing finance system, which will protect taxpayers and help Americans who want to buy a home," said Treasury Secretary Steven Mnuchin in a statement. press.

According to the Treasury's plan, it is "possible" for 30-year fixed rate mortgages to remain widespread and at similar prices without government support. To support his argument, the White House discusses the private jumbo loan market, the Danish covered bond system and models from other countries.

However, as Levitin told Congress in 2013, these arguments leave out some key details. The jumbo loan market is much smaller than the conventional market and indirectly benefits from the government market. For example, jumbo portfolio lenders hedge by investing in securities backed by Fannie and Freddie.

In addition, the Danish system has an implicit and explicit guarantee of mortgages by the government, said Levitin, with a guarantee of all deposits and senior debt issued by its banks.

With respect to the comparison between the US model and that of other countries, the 30-year fixed rate mortgage is not widely available in other countries.

"It concerns me," said Jeff Monheit, a home buyer looking for a four-bedroom home in New Rochelle, NY. He and his wife are looking for a 30-year fixed rate mortgage, have no debt other than student loans and have saved a nest egg.

Yet, even if they could not qualify for the standard 30-year loan, Fannie Mae and Freddie Mac would be recapitalized.

"We would have a 15-year mortgage and enter into a deal. ARM products are not for us. At least not with these [low] rate, "Monheit told NBC News.

Although lawmakers are putting little pressure to resolve the problem before the 2020 elections, Wall Street salutes the idea of ​​a $ 100 billion IPO. After the government bailout in 2008, investors in Fannie and Freddie stopped receiving dividends – payments being redirected by the government to the Treasury Department to pay taxpayers back.

The country's largest bank, JPMorgan Chase, even organized a panel in June with investors and legal and financial experts to examine the impact of the recapitalization of Fannie and Freddie on the market, the spokesman said. Brian Marchiony at NBC News.