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Treasury Secretary Steven Mnuchin said yesterday that the Trump administration plans to require Fannie Mae and Freddie Mac to begin paying a fee for support from the Treasury Department in exchange for a change to the mortgage-finance companies’ status that will allow them to retain their earnings, the Wall Street Journal reported. Mnuchin, testifying before Senate lawmakers, said he hopes to quickly reach a deal with the regulator of Fannie and Freddie, the Federal Housing Finance Agency, to amend the terms of the firms’ government bailout agreements that would end an existing sweep of nearly all their profits to the Treasury. The change is seen as the first major step toward privatizing the companies after 11 years under government control. “We would allow a significant amount of capital to be accumulated, but in return for that make sure that the taxpayers are compensated for the ongoing Treasury support,” Mnuchin told the Senate Banking Committee, repeating key points of an administration report released Thursday. Fannie and Freddie don’t make loans but instead buy them from lenders and package them into securities that are sold to other investors. Figuring out how to refashion the companies remains the largest single piece of unfinished business from the financial crisis. The government assumed control of the firms in 2008 during the height of the crisis to prevent their failure, which officials’ feared would trigger a broader collapse in the housing market.

Treasury Secretary Steven Mnuchin is scheduled to testify before the Senate Banking Committee today at 10 a.m. EDT, about his department’s efforts to overhaul mortgage-finance giants Fannie Mae and Freddie Mac, the Wall Street Journal reported. His testimony comes five days after the administration released a report calling for the privatization of the companies, 11 years after the government took them over through a process called conservatorship. The Treasury chief will testify alongside Mark Calabria, the head of the Federal Housing Finance Agency, who will play a key role in any push to privatize the companies, and Ben Carson, the secretary of the Department of Housing and Urban Development. Thursday’s report generally avoided making specific policy recommendations, so Fannie and Freddie watchers hope the hearing will yield additional details about the government’s plans. The Treasury report provided no deadlines for the administration to take action on a series of suggestions, such as amendments to the companies’ federal bailout agreement that would allow the firms to begin to accumulate profits instead of sweeping them to Treasury. Trump administration officials hope to curtail or end the existing profit sweep “well before the end of the year.”

The Trump administration laid out its vision for releasing Fannie Mae and Freddie Mac from more than a decade of federal control, issuing a long-awaited plan that marks the government’s boldest step yet toward closing one of the final chapters of the 2008 financial crisis, Bloomberg News reported. The proposal released yesterday by the Treasury Department suggests dozens of reforms to protect Fannie and Freddie from another housing crash, shrinking their dominant market shares and creating new competitors to the companies that backstop about $5 trillion of home loans. Yet, it is only an initial step in what still would be a long and arduous road to freeing the companies from the government’s grip. While Treasury has outlined broad goals, some of the trickiest questions about how to fix Fannie and Freddie remain unanswered. In a sign of the long process ahead, Treasury acknowledged that specific details involved in releasing the companies, such as determining how they will raise capital to weather an economic calamity, still need to be negotiated across multiple government agencies.

The Treasury Department has held talks with Houlihan Lokey Inc. about hiring the restructuring firm to advise it on Fannie Mae and Freddie Mac, the U.S. mortgage giants that have been under federal control since the 2008 financial crisis, Bloomberg News reported. Retaining the investment bank would be an important step in Treasury’s push to overhaul Fannie and Freddie. But Houlihan Lokey hasn’t been hired and there’s no indication that the Trump administration intends to free the companies from the government’s grip anytime soon. Many hurdles remain and the process is fraught with political and technical difficulties. A Treasury spokesman denied that the agency is holding current discussions with any advisory firm. Still, bringing on an outside expert could prove crucial as the administration enters a new phase on housing-finance policy. The Treasury today is expected to released its long-anticipated plan — requested by President Donald Trump — for ending Fannie and Freddie’s conservatorships.

A LendingTree Inc. mortgage-lending subsidiary has converted its bankruptcy case from a chapter 11 to chapter 7, a move that comes after a trust targeting Wall Street lenders for shoddy mortgage practices was pushing for the dormant company to be liquidated, WSJ Pro Bankruptcy reported. The subsidiary, Home Loan Center Inc., changed its bankruptcy status on Thursday, after first informing Judge M. Elaine Hammond in U.S. Bankruptcy Court in San Jose, Calif., of the decision. Residential Capital LLC’s liquidating trust and Lehman Brothers Holdings Inc., which hold most of the claims against HLC, had requested on Tuesday that the judge convert the bankruptcy case from a chapter 11 proceeding to a chapter 7 under the direction of an independent trustee. ResCap argued that HLC doesn’t belong in chapter 11 because the company sold its operating assets to Discover Financial Services Inc. for $55.9 million in 2012 and has no hope of reorganizing. Earlier this week, ResCap sued LendingTree in the U.S. District Court in Minnesota, in an attempt to collect from the company a $68 million judgment against its subsidiary, HLC. ResCap alleges that LendingTree is responsible for damages caused by HLC, which filed for bankruptcy to avoid the judgment. The liquidating trust, which grew out of ResCap’s 2012 bankruptcy, said that LendingTree over the years has assumed responsibility for the debt of its subsidiaries, according to the complaint. ResCap, once one of the nation’s largest subprime servicers, collapsed into bankruptcy when thousands of those mortgages defaulted.

The U.S. government yesterday charged the founder of reverse mortgage provider Live Well Financial Inc. with engineering a $140 million fraud by inflating the value of its bonds, in what he called a “self-generating money machine,” Reuters reported. Michael Hild, who was also Live Well’s chief executive, generated more than $24 million of compensation tied to the scheme, which ran from September 2015 to May 2019, according to federal prosecutors in Manhattan who announced the charges. Founded in 2005, Live Well said it would close on May 3 and terminate its employees, after authorities said the Richmond, Virginia-based company failed to repay lenders sitting on tens of millions of dollars of losses. Live Well later took a $141 million writedown, and was put into chapter 7 bankruptcy on July 1 following a request by three lenders: affiliates of Flagstar Bancorp Inc., Industrial and Commercial Bank of China Ltd and South Korea’s Mirae Asset Financial Corp.

The judge presiding over Ditech Holding Corp.’s bankruptcy rejected a proposed restructuring of one of the nation’s largest mortgage origination and servicing businesses, ruling the terms weren’t fair to borrowers, WSJ Pro Bankruptcy reported. In a 134-page ruling filed yesterday, Judge James L. Garrity Jr. of the U.S. Bankruptcy Court in New York said the plan could prevent homeowners whose mortgages were serviced by Ditech from fighting back against fees, defaults and foreclosures once the company’s assets are sold. Ditech hasn’t shown the plan is fair to consumers who have claims against the Fort Washington, Pa.-based company, according to the judge’s ruling. Those consumers took out mortgages or reverse mortgage that were originated, serviced, sold, consolidated or owned by Ditech or any of its bankrupt affiliates, which also include Green Tree Servicing Corp. and Reverse Mortgage Solutions Inc. The restructuring proposal revolved around the $1.8 billion sale of its mortgage servicing businesses.

A type of unconventional mortgage that focuses on a borrower’s assets to vet repayment ability has drawn a warning from regulators for banks to maintain tight underwriting standards, the Wall Street Journal reported. Asset-depletion loans, also known as asset-dissipation loans, are part of a small but growing subset of the mortgage market that includes subprime loans and other riskier products. They assume borrowers draw from assets to cover a mortgage, rather than just income. They are designed for people who don’t have a conventional paycheck, including retirees or workers in the gig economy, and were traditionally aimed at high-net-worth individuals with portfolios that could be easily converted into cash for mortgage payments. Now the loans are reaching a broader set of borrowers, raising concerns that lenders aren’t properly measuring their risk. “As banks have expanded [asset-depletion underwriting] to qualify other applicants, examiners have noted weaknesses in policies and practices,” Richard Taft, the Office of the Comptroller of the Currency’s top credit-risk official, said in a written statement. He added that banks “should develop and implement policies, processes, and control systems in a manner consistent with safe and sound banking practices.”