In an interview on FOX Business Network’s Mornings With Maria on Wednesday, Donald Trump’s nominee for treasury secretary, Steve Mnuchin, said one of Trump’s “top 10” priorities was to sell government-sponsored mortgage giants Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC). Referred to colloquially as Fannie Mae and Freddie Mac respectively, Mnuchin told Maria:
It makes no sense that these are owned by the government and have been controlled by the government for as long as they have [Fannie Mae was created in 1938 and Freddie Mac in 1970].
In many cases [they] displace private lending in the mortgage markets.… We’ve got to get them out of government control.
Fannie Mae was part of President Franklin Roosevelt’s New Deal, created to expand the mortgage market by making loans that local or regional banks couldn’t make or didn’t want to make. Freddie Mac was created to expand the secondary market for home mortgages by packaging them and selling them to investors seeking taxpayer guarantees.
When mortgages suffered massive defaults leading up to the Great Recession, those government guarantees were used to rescue both companies, costing taxpayers nearly $200 billion. Since 2008, both lenders have been operating under conservatorships established by the Treasury Department.
Both entities distort the mortgage market allowing borrowers to obtain mortgages at below-market rates, thanks to those taxpayer guarantees. They create and insure mortgages that otherwise wouldn’t be created, and they compete unfairly with banks and credit unions in the mortgage business when the mortgages are sound. Because taxpayer guarantees are still in place, taxpayers are still at risk in the event of another real estate market meltdown or other financial recession.
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