Latest news with #FannieandFreddie
New York Post
4 days ago
- Politics
- New York Post
Trump v. California on women's sports, a risky mortgage retread, and other commentary
Olympics beat: Trump v. Cali on Women's Sports The 2028 Los Angeles Olympics will become 'a slow-motion car crash' over the issue of transgender athletes in women's sports, Jennifer Sey warns at The Spectator, with President Trump facing off against California and the US Olympic Committee. 'For the first time in history,' the LA Games will see 'more women's events than men's' — but if biological men can fight for those medals, 'it's women who will lose. And some will get hurt.' Gavin Newsom doesn't toe the line on his executive order 'aimed at protecting women's sports' — yet 'taxpayer dollars earmarked for Los Angeles 2028' are already flowing. 'Compelled participation against biological men isn't inclusion,' but 'institutionalized abuse.' Eye on Wall St.: A Risky Mortgage Retread 'The American public doesn't need a sequel to 'The Big Short,' ' Veronique de Rugy snarks at Reason. The 2008 financial crisis traced in that film, was sparked by Washington, 'specifically through Fannie Mae and Freddie Mac,' government-sponsored lenders that (under pressure from Congress) backed 'risky home loans by effectively making taxpayers cosign the mortgages.' Those 'significantly loosened lending standards' wound up 'inflating the housing bubble.' Now, President Trump is floating plans to 're-privatize' Fannie and Freddie without taking taxpayers off the hook for bad loans. Aargh! 'Financial entities — particularly those shielded by government guarantees — inevitably revert to risky behavior when market pressures and profit incentives align.' The only safe way to privatize Fannie and Freddie is 'without any implicit government guarantees.' From the right: A Win Over Climate Hysteria 'The right to express an opinion contrary to the 'settled science' was vindicated last week in the District of Columbia Superior Court,' cheers The Washington Times' editorial board. Penn State University researcher Michael Mann's 'hockey stick' chart 'stoked climate panic around the world, then he sued critics who implied his 'findings were erroneous.' A DC jury last year awarded Mann '$1 million in punitive damages,' but that 'victory was based in part on a chart containing numbers that couldn't be replicated' — so it seems he 'will now end up paying the individuals he sued a total of around $1.4 million.' Conservative: Mamdani's Hateful Lies Progressive mayoral candidate Zohran Mamdani, already 'a post-Oct. 7 vessel for the de-stigmatized tidal wave of anti-Semitism in the West,' this week 'crossed a line that was staggeringly militant even in our current age of say-anything shock-jock politics,' thunders Commentary's Seth Mandel. In a campaign stop at a mosque, he denounced 'Israel's pager operation, likely the most carefully targeted such operation in the history of warfare, in which the pagers only of Hezbollah exploded, maiming thousands of terrorists after the group had waged months of war on Israeli civilians.' He claimed it killed 'scores of Lebanese civilians,' marvels Mandel, when 'not even Lebanese authorities claimed as much. The only way that number is accurate is if Mamdani considers Hezbollah terrorists to be civilians, which is possible, because he does not mention Hezbollah at all in his remarks.' Civil-rights watch: Whistleblowers vs. DEI The Justice Department's 'Civil Rights Fraud Initiative, which will use the False Claims Act, encourages whistleblowers to come forward with evidence of illegal' discrimination, applauding Edward Blum & Adam Mortara at The Wall Street Journal. 'Universities, corporations, and nonprofit organizations have established 'diversity, equity and inclusion' policies that violate the plain language of civil-rights laws,' yet 'receive billions in federal funding by falsely certifying that they are in compliance with those laws.' For instance, 'a university can't accept taxpayer dollars while condoning antisemitism on campus or treating applicants differently based on race.' The Justice initiative gives whistleblowers 'an incentive to come forward and expose unlawful discrimination' by letting them collect a share of potential multimillion-dollar damages. — Compiled by The Post Editorial Board
Yahoo
4 days ago
- Business
- Yahoo
Bill Ackman is keen on Trump privatizing Fannie Mae and Freddie Mac. There's a right way and a wrong way to do it
This week, President Trump made a long-awaited announcement concerning the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). On Tuesday, Trump wrote in a Truth Social post: 'I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President.' While part of his proposal is sound—these two government-sponsored enterprises (GSEs) should indeed be removed from Federal Housing Finance Authority (FHFA) conservatorship—the implicit government backing of the GSEs must be removed, too. The GSEs have been under FHFA conservatorship since September 2008, when their bankruptcy quickly precipitated a wider financial crisis. They remain a singular force in housing finance. Fannie and Freddie currently hold more than $7 trillion in mortgages. Most of these mortgages have funded purchases of single-family residential property and account for about half of all such finance. The GSEs also provide about one-third of multifamily mortgage finance. Privatization is an enormous opportunity that is also freighted with risks. To begin a conversation about privatizing Fannie and Freddie is to suggest that they have returned to health, as well as to contemplate the largest public equity offering in history. But Fannie and Freddie remain fragile, and small changes in the structure of a privatization deal can put hundreds of billions of dollars at risk. Poor execution can leave taxpayers exposed to future bankruptcies and reverberate through mortgage finance and capital markets in unexpected ways. It is worth taking the time to get the details right. Americans' attachment to the GSEs rests on the desire for cheap mortgage finance. The GSEs are widely credited with making 30-year, fixed-rate, prepayable mortgages widely available at low cost. This is not the norm internationally, where floating interest rates, shorter maturities, and prepayment penalties are more common features. The GSE mortgage structure reduces monthly payments and transfers interest rate risk from borrowers to lenders. Private mortgage providers have firmly embraced the GSEs' mortgage structure and provide finance at a comparable price. The difference in interest rates between privately underwritten 'jumbo' mortgages which are too big for the GSEs and otherwise identical 'conforming' GSE mortgages has averaged a mere 6 basis points (0.06 percent) over the past five years, albeit with swings of 60-70 basis points in either direction. Thus, it is not obvious that the continued existence or pricing of 30-year fixed-rate mortgages depends on the GSEs. Since 1992, the FHFA has been required to establish annual housing goals for the GSEs. These goals tend to set thresholds for mortgage availability using equity-based criteria like geography and household income. Borrowers who cannot otherwise satisfy the GSEs' underwriting criteria may qualify for mortgages through these programs. Yet it is not clear that these programs provide more benefits than other government housing programs or private banks' Community Reinvestment Act activities. Nevertheless, the GSEs enjoy significant legal and regulatory advantages over the regulated financial system. The GSEs are neither chartered as banks nor required to meet bank prudential standards. Their required capital is far less than that required for bank balance sheet lending or private securitizations. They raise debt on favorable terms due to their proximity to the government. Trillions of dollars in agency debt and mortgage-backed securities (MBS) are held by the Federal Reserve and the banking system, where regulations deem them far less risky than comparable debt obligations. This combination of light-touch regulation, leverage, and cheap finance allowed the GSEs to quickly devour much of the residential mortgage market from the 1980s through 2008. When the GSEs failed in September 2008, it became clear that they had raised finance cheaply not because they were superior managers of risk, but because investors correctly anticipated that the United States Treasury would backstop them in a crisis. The Treasury committed hundreds of billions in capital to the GSEs, receiving senior preferred stock and warrants to purchase 79.9% of their common stock. Exercising those warrants gave the Treasury majority ownership and control of the GSEs, which was used to sweep all GSE profits into the Treasury. The GSEs have returned to profitability, but their finances remain precarious. At the end of 2024, Fannie was operating at 46x leverage, while Freddie stood at 57x (the largest banks are effectively capped at 20x). To reduce their leverage to reasonable levels, the GSEs must more than double their equity, which will take about a decade at their current rate of profitability. Bill Ackman's Pershing Square holds 2% of Fannie Mae's equity and has a plan for privatizing the GSEs that is well-calibrated to our current political moment. In Ackman's 'The Art of the Deal' presentation from earlier this year, Obama and Biden are the villains, stealing the GSEs and their profits, while Trump is the hero who can save them. Ackman's plan pays lip service to curtailing the benefits enjoyed by the GSEs, but the details of his plan leave most of them untouched. He wants the GSEs to remain outside the sphere of bank regulation and free to employ immense leverage. He likes the privileges GSE securities enjoy at the Fed and on bank balance sheets. He would like to formalize a government backstop of the GSEs as a kind of reinsurance arrangement, but these crucial details are left to the imagination. Ackman is keen to have Trump 2.0 achieve privatization by executive action. But because the statutes enabling the GSEs' role in housing policy cannot be canceled by the executive, executive action would leave the GSEs' role in future housing policy unresolved. The need for legislation on this question requires reading Congress in on any privatization plans. It would be foolish for the Treasury to give away the GSEs' profits while retaining the tail risk. There is no reason why the GSEs cannot compete alongside other mortgage-backed securities issuers as private entities. However, it would be reckless to privatize the GSEs with a full complement of government-subsidized advantages in prudential regulation, funding terms, and catastrophe insurance. The GSEs should compete and survive on the same terms as other regulated financial firms. To bring them within the perimeter of prudential regulation, the GSEs should be rechartered as Financial Holding Companies and designated systemically important institutions, subjecting them to the supervision and regulation of the Federal Reserve. The GSEs would be expected to maintain adequate levels of capital and manage risks according to best practices. Why should they be exempt? The GSEs must also give up their funding advantages. The Federal Reserve should treat agency debt and agency MBS like their private sector counterparts by selling the agency obligations in its portfolio and refraining from future purchases. Bank capital regulations should similarly apply credit risk weights to agency obligations without prejudice. Privatized GSEs should not be available to the government as instruments of policy. The divorce is necessary to blunt the GSEs' claim on public assistance in future crises. Giving up the GSEs does not require giving up on housing policy, which is also pursued through multiple other agencies. An act of Congress terminating the GSEs' place in housing policy is essential. Preparing the GSEs properly for privatization will take several years to solidify their finances, rebalance their footprint in the regulated financial system, and decouple their obligations from the Fed's balance sheet. When preparations are complete, selling hundreds of billions in GSE equity will require years of steady execution. The impossibility of any investor achieving a controlling stake makes it even more important to establish robust corporate governance, processes, and controls prior to a public offering. Competently-run, -regulated, and -privatized GSEs will be profitable, but also much smaller than they were in 2008. Privatizing rechartered, re-regulated GSEs will raise significant funds for the government, reduce risks to future budgets, and allow the rest of the financial system to compete on a level playing field. There is no economic reason why the Trump administration should fast-track a privatization process, and Congress should not allow the GSEs or other valuable government assets to be dumped at fire-sale prices for short-term political advantage. The opinions expressed in commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune. This story was originally featured on
Yahoo
4 days ago
- Business
- Yahoo
Trump wants to end federal control of Fannie Mae and Freddie Mac. Here's what to know
The Trump administration wants to put a new 'welcome' doormat on the front steps of mortgage giants Fannie Mae and Freddie Mac. President Donald Trump said Tuesday that he wants to undo government ownership of Fannie Mae and Freddie Mac and let them go public. It's a concept that has occasionally popped up in policy debates since the Obama administration. Here's what to know about a possible Trump-led effort to end federal control of Fannie and Freddie. They're a pair of government-supervised mortgage firms with an enormous footprint in the housing market. The firms don't actually make home loans. Instead, they purchase mortgages from lenders, bundle them into securities and sell them to investors with a federal guarantee against default. That guarantee renders Fannie and Freddie attractive to investors since they're shielded from losses. Fannie and Freddie comprise about 70% of the mortgage market, according to 2023 data from the Urban Institute. The pillar of the market is the 30-year fixed-rate mortgage, a distinct American product that insulates homeowners from inflation spikes or changes to interest rates while paying off their homes. Fannie and Freddie had long operated as publicly-traded businesses responsive to shareholders since their inception. But in 2008, Fannie and Freddie crashed into trouble after buying a flood of toxic loans. Housing prices nosedived and homeowners trailed on mortgage payments. Fannie and Freddie's losses were enormous. The ensuing mortgage-market meltdown led to a bailout of Fannie Mae and Freddie Mac, which placed them into what's known as 'conservatorship,' an arrangement giving the federal government broad powers in managing the firms. Thatfell just short of full-blown nationalization. The federal rescue of Fannie and Freddie was originally designed as a short-term fix, but the setup has lasted almost two decades. A federal spinoff of Fannie and Freddie isn't a new idea. Congress has flirted with it before, but several attempts fizzled out over the years. In 2019, then-Senate Banking Chair Mike Crapo, an Idaho Republican,released a three-page outline that would turn the institutions into private guarantors with a limited share of the mortgage market. The push didn't gain traction. Some observers argue that privatizing Fannie and Freddie could be achieved through the Federal Housing Finance Agency (FHFA), though it would take several years to complete an arduous process. Fully restoring private control of Fannie and Freddie wasn't an explicit goal of Trump's 2024 campaign and he didn't mention it on the campaign trail. But he has taken an interest in the idea in several social media posts. In addition to stating his intention of eventually selling off Fannie and Freddie on Tuesday, Trump wants to rewrite the unspoken contract between investors and the federal government. He made explicit what was once treated as implicit in the housing market: The U.S. would again prop up the mortgage giants if another 2008-style economic meltdown fell at their doorstep. Analysts have widely expected a second Trump administration to try and finish what they started. The first Trump administration sought to promote private competition in the mortgage market, arguing it was an effective method to lower mortgage rates. In 2019, the Treasury allowed Fannie and Freddie to keep more of their earnings and begin rebuilding capital reserves so both could eventually function without government support. Democrats at the time were chilly to the measures. The Trump administration could try to release Fannie and Freddie from federal ownership without Congress, a step that's likelier given that lawmakers have devoted little time and resources on the issue. 'Its implementation is likely to take many years, potentially longer than the four years Trump II will have in office,' housing expert Donald Layton said in a January blog post for the NYU Furman Center. Investors such as Bill Ackman, who bought shares at deeply discounted rates, stand to make a windfall if Fannie and Freddie become publicly traded. Some analysts warn that casting off Fannie and Freddie into the private sector could drive up mortgage rates. But that depends on how their release from conservatorship is structured and the strength of a federal guarantee to rescue them if they fail. FHFA director Bill Pulte said during a congressional hearing in February that any exit from conservatorship for Fannie and Freddie should be 'carefully planned' to avoid unsettling mortgage rates. For the latest news, Facebook, Twitter and Instagram.
Yahoo
5 days ago
- Business
- Yahoo
Trump's latest Fannie and Freddie comments are confusing the stock and bond markets
Shares of mortgage giants Fannie Mae and Freddie Mac are whipsawing after President Trump emphasized this week that his administration is working on taking the companies public while maintaining implicit backing by the US government. But Trump provided few new details on how he could engineer such a complex undertaking without upending the country's $9 trillion mortgage market and sending home loan rates spiraling. 'Our great Mortgage Agencies, Fannie Mae and Freddie Mac, provide a vital service to our Nation by helping hardworking Americans reach the American Dream — Home Ownership. I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President,' Trump said in a Truth Social post late Tuesday. Shares of the two government-sponsored enterprises surged initially on Wednesday before paring gains after Bill Pulte, the chairman of the two companies, said in an interview that Trump didn't say he would look to fully privatize the companies, and they could go public while remaining under government control. Fannie Mae stock (FNMA) closed 2.2% higher on Wednesday, while Freddie Mac shares (FMCC) finished up 5.3%. But both were dropping as of midday Thursday. The mortgage bond market is so far signaling similar confusion. After Trump's latest post, the extra yield investors demand as compensation for the risk of holding on to mortgage bonds shrank slightly, then rose a bit before tightening again. 'The devil is really in the details with this one,' said Walter Schmidt, senior vice president and manager for mortgage strategies at FHN Financial. 'Policy wish lists and reality are very different things.' Trump's latest statement looks to some like an effort to reassure markets that Fannie and Freddie will maintain some sort of government guarantee even once they are released from the government's control, a crucial factor that helps keep mortgage bond yields and, by association, mortgage rates low. Under the current system, Fannie and Freddie are under formal government control, giving them the same near-perfect credit ratings as the US government. Debt investors consider the mortgages they purchase, package, and sell as bonds as ultra low-risk. Read more: What is the 10-year Treasury note, and how does it affect your finances? Trump's proposal for an implicit guarantee would be a return to Fannie and Freddie's status before the 2008 financial crisis, when the mortgage giants weren't formally supported by the government but were generally considered too big to fail, leading to the expectation that the government would step in if they ran into trouble. That setup also gave investors confidence that buying Fannie and Freddie mortgage bonds is low-risk, though not quite as low-risk as a setup with explicit government backing. 'It's good that Trump [posted] the other day that the GSEs will still have the implicit guarantee,' said Tracy Chen, who leads global structured credit investing at Brandywine Global. 'That takes out the tail risk. At the same time, I think the market is still looking for the best scenario, which would be an explicit guarantee, but we won't have that.' But in a situation where the GSEs are released without any sort of government guarantee, mortgage bond investors would demand extra yield to hold on to debt that suddenly has a riskier profile. Some may choose to stop buying the bonds altogether. Mortgage rates would likely rise in response. It's tough to make calls on Fannie and Freddie's release due to 'the rather digital nature of how things could play out,' Morgan Stanley strategists led by Jay Bacow and James Egan wrote in a note Tuesday. But current uncertainty around the guarantees is likely keeping some mortgage bond buyers out of the market even now. By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy 'While we think it is extremely unlikely that the GSEs can exist without some type of government guarantee, the longer uncertainty exists, the more barriers there are to investors buying the local supply,' the strategists wrote. If demand for Fannie and Freddie's mortgage bonds ever materially dries up, it would radically upend the current housing finance system. The two companies support about 70% of the mortgage market, and if investors lose faith in those entities, more homebuyers would likely need to turn to alternative mortgages like higher-interest non-conventional loans, or government loans that leave taxpayers shouldering the risk. 'Our current [mortgage-backed securities] market in the US is completely based on the GSE system, so any overhaul is fraught with risks,' Schmidt said. Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages, and home insurance. Sign up for the Mind Your Money newsletter Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
5 days ago
- Business
- Yahoo
Contributor: A Trump deregulator may set us up for a sequel to the 2008 crisis
The movie "The Big Short" — dramatizing the reckless behavior in the banking and mortgage industries that contributed to the 2008 financial crisis — captures much of Wall Street's misconduct but overlooks a central player in the collapse: the federal government, specifically through Fannie Mae and Freddie Mac. These two government-created and government-sponsored enterprises encouraged lenders to issue risky home loans by effectively making taxpayers co-sign the mortgages. This setup incentivized dangerous lending practices that inflated the housing bubble, eventually leading to catastrophic economic consequences. Another critical but overlooked factor in the collapse was the Community Reinvestment Act. This federal law was intended to combat discriminatory lending practices but instead created substantial market distortions by pressuring banks to extend loans to borrowers who might otherwise have been deemed too risky. Under threat of regulatory penalties, banks significantly loosened lending standards — again, inflating the housing bubble. After the bubble inevitably burst, Fannie and Freddie were placed under conservatorship by the Federal Housing Finance Agency. The conservatorship imposed rules aimed at preventing future taxpayer-funded bailouts and protecting the economy from government-fueled market distortions. Now, President Trump's appointee to lead that agency, Bill Pulte, is considering ending this conservatorship without addressing the core structural flaw that fueled the problem in the first place: implicit government guarantees backing all Fannie and Freddie mortgages. If Pulte proceeds without implementing real reform, taxpayers on Main Street are once again likely to be exposed to significant financial risks as they are conscripted into subsidizing lucrative deals for Wall Street. Without genuine reform, the incentives and practices that led to the crisis remain unchanged, setting the stage for a repeat disaster. Pulte's proposal isn't likely to unleash free-market policies. Instead, it could further rig the market in favor of hedge funds holding substantial stakes in Fannie and Freddie, allowing them to profit enormously from the potential upside, while leaving taxpayers to bear all the downside risks. A meaningful solution requires Fannie and Freddie to significantly strengthen their capital reserves. The two government-sponsored enterprises still remain dangerously undercapitalized. A report from JP Morgan Chase describes it this way: 'Despite steady growth in [their net worth], the GSEs remain well below the minimum regulatory capital framework requirements set by the Federal Housing Finance Agency in 2020.' Imposing robust capital requirements similar to those that govern private banks would oblige the two enterprises to internalize their risks, promoting genuine market discipline and accountability. Further reforms should address transparency and oversight. Enhanced disclosure standards would allow investors, regulators and the public to better assess risks. Additionally, limiting the types of mortgages these entities can guarantee could reduce exposure to the riskiest loans, further protecting taxpayers. Implementing clear rules that prevent Fannie and Freddie from venturing into speculative financial products would also mitigate potential market distortions. Critically, the federal government must clearly communicate that future bailouts are not an option. Explicitly removing government guarantees would compel Fannie and Freddie to operate responsibly, knowing that reckless behavior will lead to their insolvency, not to another taxpayer rescue. Clear legal separation from government backing is essential to prevent moral hazard. The combination of government guarantees, regulatory pressure from policies such as the Community Reinvestment Act and inadequate capital standards created the perfect storm for the 2008 financial crisis. Ignoring these lessons and repeating past mistakes would inevitably lead to a similar disaster. Proponents of prematurely releasing Fannie and Freddie argue that market conditions have changed and risk management has improved. Yet, history repeatedly demonstrates that without structural changes, financial entities — particularly those shielded by government guarantees — inevitably revert to risky behavior when market pressures and profit incentives align. Markets function best when participants bear the full consequences of their decisions, something impossible under the current structure of these government-sponsored enterprises. Ultimately, the only responsible approach is removing taxpayers from the equation entirely. Fannie Mae and Freddie Mac should participate in the mortgage market only as fully private entities, without any implicit government guarantees. The American public doesn't need a sequel to 'The Big Short.' The painful lessons of the 2008 crisis are too recent and too severe to be ignored or forgotten. Market discipline, fiscal responsibility and genuine reform — not government-backed risk-taking — must guide our approach going forward. We can only hope that the Trump administration chooses fiscal responsibility over risky experiments that history has already shown end in disaster. Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate. If it's in the news right now, the L.A. Times' Opinion section covers it. Sign up for our weekly opinion newsletter. This story originally appeared in Los Angeles Times.
