For years after the 2008 mortgage-market meltdown, Republicans and Democrats agreed on little about what to do with Fannie Mae and Freddie Mac except one thing: Get rid of them. A Trump administration housing-finance roadmap released last week would do the opposite, allowing the government-controlled companies to remain at the center of the American home-ownership system for years to come, according to a Wall Street Journal commentary. The government reluctantly recognized the difficulty of replacing institutions that undergird the home-buying market. The administration’s report outlines a path that would return the firms to private ownership but with a government backstop. An envisioned multiyear transition won’t have any immediate effect on housing markets, but its impact in the future will turn on many details that remain to be decided. How policy makers and the companies balance the competing demands of protecting taxpayers, delivering a return to the companies’ shareholders and ensuring access to home loans will help determine who gets mortgages and on what terms. Fannie and Freddie don’t make loans but buy them from lenders. They package them into securities that are sold to investors, and provide guarantees to make the investors whole if the loans default. This enables lenders get their money back so they can lend again, by matching them up with investors such as pension and hedge funds that wouldn’t otherwise invest in home loans. This role has helped preserve America’s popular 30-year, fixed-rate mortgage — something few other countries have — including during savings-and-loan crises in the 1980s. It also requires an unusual degree of government support. The setup relied on an implicit understanding in bond markets that the U.S. government would bail out Fannie and Freddie if they ever got into trouble, given the importance of their middleman role for the national economy.
