Fannie Mae and Freddie Mac would survive and escape the government’s clutches, if community bankers had their say.
The Independent Community Bankers of America, a trade group that represents small banks, released a plan Tuesday for reforming the two government-sponsored enterprises, including allowing them to rebuild capital and exit the government’s custody.
The group, which is influential because of the broad representation of its members across congressional districts, had in the past indicated supprt for allowing Fannie and Freddie to be shuttered.
The two mortgage giants have existed as wards of the government since being bailed out in the 2008 housing crisis. The Obama administration favored ending them as part of reform, but the Senate legislation it backed failed to gain traction.
Now, the community bankers advocate releasing the two businesses, envisioning them as shareholder-owned, regulated utilities.
“ICBA and the nation’s community bankers urge Congress and the Trump administration to end the destructive sweep of the GSEs’ earnings directly to government coffers, put the GSEs on sound financial footing, support equitable access to the housing-finance system, and protect taxpayers from another housing crisis,” stated Camden Fine, the group’s CEO.
The group’s call to allow Fannie and Freddie to retain earnings will please the companies’ current private shareholders. Investors, including major hedge funds, have sued the government to reverse the Obama administration’s 2012 decision to amend the bailout and take all profits from the enterprises for the Treasury.
Under current law, the businesses’ capital is slated to fall to zero next year, meaning that the companies would have no financial buffer if they were to suffer losses. In that case, they would depend on a infusion of funds from the Treasury. Investors fear that the appearance of such a “bailout” would spur Congress to make hasty decisions about reforming Fannie and Freddie.
The Trump administration has said that overhauling housing finance is a priority. Congressional leaders have indicated that they hope to pursue reform legislation after working on healthcare, tax reform, and financial reform.
Industry groups are beginning to weigh in. The Mortgage Bankers Association, another prominent trade group, this spring proposed turning the companies into utilities and allowing new companies to compete with them.
This post has been updated to clarify the Independent Community Bankers of America’s past stance on Fannie and Freddie.
