AFP, Washington :
A decade after the mortgage bubble burst sparking the Great Recession, President Donald Trump wants to privatize two financial linchpins of the multi-trillion-dollar American housing sector.
In Senate testimony on Tuesday, US Treasury Secretary Steven Mnuchin laid out the administration’s reform plans for housing finance, including the government-sponsored enterprises known as Fannie Mae and Freddie Mac.
“In their current form, Fannie and Freddie are still too big to fail,” Mnuchin told lawmakers, saying their size and importance created liabilities for the financial system that could require another unpopular taxpayer bailout.
The two organizations – which together back about half of all US residential mortgages – were placed under conservatorship, or effectively nationalized, during the mortgage meltdown of 2008.
A $190 billion government bailout that year saved the two entities, as defaults by risky so-called sub-prime borrowers soared nationwide.
Little understood by the general public, the two institutions do not in fact originate mortgages.
Rather, they pump liquidity into the housing sector by buying mortgages from banks and then packaging them as securities that they can either keep or sell onward to investors with an implicit guarantee.
This system eases the financing of long-term lending such as 30-year mortgages, which are rare outside the United States but have been key to achieving the “American dream” of homeownership.
At the moment of the housing market’s collapse, the home ownership rate had hit 70 percent before tumbling as foreclosures swept the nation.
Also testifying Tuesday, Mark Calabria, director of the Federal Housing Finance Agency, said a 25 percent decline in the housing market would cause $43 billion in losses for the financial institutions.
A decade after the mortgage bubble burst sparking the Great Recession, President Donald Trump wants to privatize two financial linchpins of the multi-trillion-dollar American housing sector.
In Senate testimony on Tuesday, US Treasury Secretary Steven Mnuchin laid out the administration’s reform plans for housing finance, including the government-sponsored enterprises known as Fannie Mae and Freddie Mac.
“In their current form, Fannie and Freddie are still too big to fail,” Mnuchin told lawmakers, saying their size and importance created liabilities for the financial system that could require another unpopular taxpayer bailout.
The two organizations – which together back about half of all US residential mortgages – were placed under conservatorship, or effectively nationalized, during the mortgage meltdown of 2008.
A $190 billion government bailout that year saved the two entities, as defaults by risky so-called sub-prime borrowers soared nationwide.
Little understood by the general public, the two institutions do not in fact originate mortgages.
Rather, they pump liquidity into the housing sector by buying mortgages from banks and then packaging them as securities that they can either keep or sell onward to investors with an implicit guarantee.
This system eases the financing of long-term lending such as 30-year mortgages, which are rare outside the United States but have been key to achieving the “American dream” of homeownership.
At the moment of the housing market’s collapse, the home ownership rate had hit 70 percent before tumbling as foreclosures swept the nation.
Also testifying Tuesday, Mark Calabria, director of the Federal Housing Finance Agency, said a 25 percent decline in the housing market would cause $43 billion in losses for the financial institutions.
