A LOT Riding On The Election For Fannie &Freddie
• Presidential election candidates Donald Trump and Joe Biden have diverse views on the federal government’s role in the $11T mortgage market.
• As per data from TheStreet's Mish Talk, the Fed now owns $2T in mortgages:
• Q2 mortgage volumes peaked to an11-month high, growing 130% in refinance originations annually, generating ~$513B, according to Attom Data Solutions. Q1 grew 105% annually with $385.5B in refinancing.
• It is more than a decade that housing-finance giants Freddie Mac (OTCQB:FMCC -1.4%) and Fannie Mae (OTCQB:FNMA -1.9%) have remained in conservatorship after their bailout during the Great Recession.
• Shareholders have only remained spectators to profits being transferred to the Treasury Department to repay the federal government and have spent years without dividends during the period.
• In the Trump administration, hope emerged for both the companies as Mark Calabria, director of Federal Housing Finance Agency began working on recapitalizing the two enterprises after ending the years of profit sweeps.
• "If the current administration stays in and Calabria is still there, it's a 2021 to 2022 kind of a time frame, but there are a lot of variables," Mortgage Bankers Association Chief Economist Mike Fratantoni says.
• But with Biden leading the polls the presidential election could determine the fate of Fannie Mae and Freddie Mac — and the broader housing-finance ecosystem.
• Most observers expect that Biden would move to replace Calabria, especially if granted the ability to fire him by the Supreme Court.
• Whoever he would install is likely to take the Obama approach in holding Fannie and Freddie responsible for advancing certain affordable-housing goals.
• Biden would focus on ways to use the companies to boost housing affordability and promote homeownership.
• The Biden camp argues that the Trump administration’s approach would bring higher mortgage rates while Republicans say the government should play a smaller role backstopping the mortgage market, and that any increase in rates would be minimal.
• In 2019, Fannie and Freddie’s investors marked a victory when the Fifth Circuit Court of Appeals ruled that the structure of the FHFA was unconstitutional. The case is set to be heard by the U.S. Supreme Court in coming weeks.
AI
