The Trump administration wants Congress to remove the federal charters for Fannie Mae and Freddie Mac as part of a plan to release the mortgage giants from U.S. control, according to a sweeping proposal for reorganizing the government released Thursday.

The two companies, which have been under U.S. conservatorship since 2008, could have their market dominance challenged by new competitors under the plan. Fannie, Freddie and any rivals would be overseen by a government entity with power to approve guarantors, change regulations and ensure market participants are adequately capitalized, the report said.

The changes, which are subject to congressional approval, would give Fannie, Freddie and their competitors access to an explicit guarantee on mortgage-backed securities that would be accessible only in “limited, exigent circumstances,” according to the report.

“Taxpayers would be protected by virtue of the capital requirements imposed on the guarantors, maintenance of responsible loan underwriting standards, and other protections deemed appropriate by their primary regulator,” the report said.


Fannie preferred shares rose 5%, and Freddie’s climbed 4%.

Government control

Fannie and Freddie don’t make loans themselves. They buy them from lenders, wrap them into securities and make guarantees to make investors whole if the loans default.

Federal regulators took over the two companies during the 2008 financial crisis, eventually injecting them with $187.5 billion in bailout money. They have since returned to profitability and paid the government more in dividends than they got in aid. Still, some members of Congress and other policymakers have said the companies should be replaced with a system that doesn’t leave taxpayers on the hook for losses.

The White House proposal is similar to one developed by two senators who have played key roles in trying to advance an overhaul of U.S. housing finance.


Republican Bob Corker of Tennessee and Democrat Mark R. Warner of Virginia tried to develop a bill that would have largely preserved the operations of Fannie and Freddie while opening the market to competition. Their effort foundered this year after they failed to win support from Senate progressives, who wanted to preserve affordable-housing mandates.

‘Sustainable support’

The White House plan envisions an overhaul designed so that affordable-housing fees sent to the Department of Housing and Urban Development would enable the Federal Housing Administration to provide subsidies for lower-income borrowers “while maintaining responsible and sustainable support for homeownership and wealth-building.”

The proposal was applauded by Mortgage Bankers Assn. Chief Executive David Stevens, who noted its similarities with work already done by lawmakers on Capitol Hill.

“It includes many core principles that [the Mortgage Bankers Assn.] has long advocated for, such as an explicit government guarantee on [mortgage-backed securities] only as a catastrophic backstop, allowing for multiple guarantors and ensuring small lender access,” Stevens said in a statement. “As with any proposal of this size, the devil is in the details.”


Private shareholders have pushed for the Trump administration to work with the Federal Housing Finance Agency, the independent agency that oversees Fannie and Freddie, to recapitalize and release the companies without Congress. Such a tactic could become easier early next year, once Trump can replace the agency’s director, Mel Watt, with his own nominee.