WASHINGTON: The Trump administration wants to take Fannie and Freddie out of government conservatorship, but doing so will be complicated due to the central role they play in the housing market and the Treasury's holdings in the two firms.WHAT ARE FANNIE MAE AND FREDDIE MAC?
Fannie Mae and Freddie Mac were created by Congress in 1938 and 1970, respectively, with a mandate to expand the U.S. housing market to help boost American homeownership. The pair buy home loans originated by banks, freeing up lenders' capital to make new loans. They then hold the mortgages or package them into securities to sell on the secondary market. The pair, which are private companies with government charters, currently guarantee over half of U.S. mortgages.
The companies also have legacy common and preferred equity securities that trade on the “pink sheets” market for unlisted entities. A number of hedge funds have built stakes in both classes of stock and some have sued the government over their 2008 seizure, claiming the private companies' profits have been illegally seized by the federal government.In March, Trump ordered the Treasury and Housing and Urban Development Departments to develop a housing finance reform plan.
Trump regulators have already taken some administrative steps to rein in Fannie and Freddie ahead of any potential overhaul. In July, they announced they would not extend an exemption, which will expire in 2021, that lets the pair back riskier mortgages - nearly one-fifth of their business, according to the Urban Institute.
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