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House Republicans want to privatize Fannie Mae and Freddie Mac as part of their 2018 budget proposal, TheStreet.com reported yesterday. GOP members of the House of Representatives on Tuesday unveiled their 2018 budget. Dubbed "Building a Better America" and authored by Budget Chairman Diane Black (R-Tenn.), the plan calls for more than $200 billion in cuts to mandatory spending programs and sets the path for tax reform. It also calls for the privatization of mortgage giants Fannie Mae and Freddie Mac and assumes provisions of the House bill that would repeal Dodd-Frank. "The Treasury has already provided $187 billion in bailouts to Fannie and Freddie, and taxpayers remain exposed to $5 trillion in Fannie Mae and Freddie Mac's outstanding commitments, as long as the entities remain in conservatorship," the plan reads. "Our budget recommends putting an end to corporate subsidies and taxpayer bailouts in housing finance."

Royal Bank of Scotland Group PLC yesterday agreed to pay $5.5 billion to the Federal Housing Finance Agency to settle a probe into its sale of toxic mortgage-backed securities in the run up to the financial crisis, the Wall Street Journal reported. The settlement clears one of several obstacles the U.K. government-controlled bank faces before it can resume dividend payments and continue its return to private hands. RBS said in a statement that it had already set aside funds to cover most of the cost of the settlement. The bank will have to take an additional charge of $196 million, which will be realized in its coming results in August. In settling, RBS becomes the 17th bank to strike a deal with the FHFA over the sale of subprime mortgages to Fannie Mae and Freddie Mac. The settlement came in higher than investors expected, tempering the idea that U.S. agencies would soften their approach to foreign banks under the Trump administration.

A federal judge granted the Federal Deposit Insurance Corp. permission to revive lawsuits against Citigroup Inc., Bank of New York Mellon Corp. and U.S. Bancorp that he had dismissed last September, to recoup more than $695 million of losses on soured mortgage debt that a failed Texas bank once owned, Reuters reported. In a decision made public yesterday, U.S. District Judge Andrew Carter in Manhattan said that the FDIC could try to show it still had legal standing to sue as the receiver for Austin-based Guaranty Bank, despite having transferred its claims to a "resecuritization trust" when it sold the debt in March 2010. The FDIC had accused the three banks in its lawsuits of failing, as bond trustees, to monitor the underwriting and servicing of mortgages backing $2.7 billion of securities that Guaranty bought. The FDIC has estimated that Guaranty's failure in August 2009 could cost its deposit insurance fund $3 billion.

The U.S. housing finance system continues to put taxpayers at risk in a market dominated by government-backed agencies, Federal Reserve Governor Jerome Powell said yesterday, calling for further reform of an "unsustainable" situation, Reuters reported. A decade after doubts about the creditworthiness of mortgage-backed securities helped trigger the worst financial crisis since the Great Depression, systemic risk remains given the concentration of mortgages in Fannie Mae and Freddie Mac, he said. "We're almost at a now-or-never moment," Powell said, arguing that the window for political action on an overhaul of housing finance may not stay open for long. Key lawmakers in the House and Senate have started to examine proposals to overhaul housing finance, and U.S. Treasury Secretary Steven Mnuchin has also indicated the issue a top priority. Policymakers have struggled for years to craft legislation to significantly reform Fannie and Freddie. The federal government bailed out Fannie and Freddie in 2008 after they took massive losses on bad mortgages. They have been in government conservatorship ever since and most mortgages are still issued with the backing of government-sponsored enterprises.