The Trump Administration’s plan to revamp the housing market holds major implications for the lower and median income demographic, potentially diminishing the options for federal aid.
While it seems unusual for the Republican Party to limit the amount of government involvement in any particular sector of finance, the aim of Trump’s plan is to reduce participation in the housing market while cutting back current programs that focus on affordable housing. With these changes in mind, here are other details about the proposed plan and what it means for both the housing and stock markets.
The Treasury Department’s Reaction
Almost immediately President Trump’s plan was unveiled, the Department of the Treasury appealed to Congress to intervene. In a quote provided by MarketWatch, the Treasury expressed a need for a guarantee from the Federal Government:
“Although Treasury does not believe a Government guarantee is required, Treasury would support legislation that authorizes an explicit, paid-for guarantee backed by the full faith and credit of the Federal Government that is limited to the timely payment of principal and interest on qualifying mortgage-backed securities,” the department said.
Fannie Mae and Freddie Mac are Here to Stay
While the fate of these programs has been debated endlessly as a major dividing point between political parties, President Trump made a concession by allowing both programs to remain.
The Washington Post provided some clarity on this debate: “The housing giants have lingered under government control for more than a decade after receiving more than $100 billion in taxpayer bailouts to shore up the housing market. Lawmakers squabbled for years about their fates, with Republicans repeatedly calling for Fannie Mae and Freddie Mac to be abolished.”
The new plan would return both programs back from federal control into private hands. Combined Fannie Mae and Freddie Mac back half the country’s housing market. At the end of the day, it may have simply been too colossal to replace in any immediate fashion, while Trump and team are trying to make impact statements in advance of the coming election.
Future Mortgage Finance Reform
With Fannie Mae and Freddie Mac hanging around, the topic turns to “now what?” in terms of how to continue the programs, and who should take charge of them. RefiGuide attempts to shed some light on this situation, although it may be pure speculation at this point:
“Many housing experts say that Trump should take a very strong look at how to get more private capital back into the mortgage markets. They say that there needs to be strong alternatives to Fannie Mae and Freddie Mac. We anticipate that FHA-programs will remain aggressive with credit and accessibility. Many bankers have rolled out no doc mortgage loans for people that meet the lending standards.”
We’ll update with more news and analysis as further information becomes available.
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