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Vice President Kamala Harris has rolled out several initiatives as part of her housing plan. She wants to incentivize builders to create 3 million units of affordable housing and develop a $25,000 housing credit for first-time homebuyers. Harris's housing goals have been widely dissected by the media, showing that the nationwide housing problem is top of mind for many people.
Harris believes that former president Trump has it all wrong when it comes to solving the housing crunch. In her Aug. 16,2024, political rally, she stated, "If his Project 2025 agenda is put into effect, it will add around $1,200 a year to the typical American mortgage. He's got it backward. We should be doing everything we can to make it more affordable to buy a home, not less."
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Trump has distanced himself from Project 2025, and it's unclear if the plans spelled out in the conservative playbook will be part of his platform. However, the conservative playbook's guidelines are behind Harris's estimate. The Poynter Institute's Politifact reviewed Harris's speech and confirmed with her campaign that the $1,200 amount is based on a 2015 study on the impact of privatizing Freddie Mac and Fannie Mae.
Freddie Mac and Fannie Mae are two government-sponsored enterprises (GSEs) that play a crucial role in the U.S. housing finance system. They were created by Congress to provide liquidity, stability and affordability to the mortgage market. Fannie Mae was created during the Great Depression. It buys mortgages from lenders such as banks and credit unions and either holds them in its portfolio or bundles them into mortgage-backed securities (MBS). These MBS are then sold to investors, providing capital back to lenders to fund more home loans. Freddie Mac was created in 1970 to further support the secondary mortgage market. It buys mortgages from smaller banks and thrift institutions. Like Fannie Mae, it repackages loans into MBS, which are sold to investors.
In 2008, during the financial crisis and meltdown in the mortgage market, both Freddie Mac and Fannie Mae were placed under government conservatorship due to concerns about their financial stability. The Federal Housing Finance Agency oversees their operations. Although they remain publicly traded companies, the U.S. government holds significant control over them.
How Likely Is GSE Reform?
Project 2025 says that the U.S. Treasury should work to end the conservatorships and push for privatization. It calls for the GSEs to be wound down and for their widespread influence in the real estate market to be diminished. Part of this includes making the Common Securitization Platform, the framework developed by the Federal Housing Finance Agency for packaging mortgages into MBS, privatized and widely available. The book says this action would “restore a sustainable housing finance market with a robust private mortgage market that does not rely on explicit or implicit taxpayer guarantees.”
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The 2015 study was conducted by The Urban Institute and Moody's Analytics. The study said that depending on how the ongoing obligations to the government are determined, mortgage rates could rise by 43 to 97 basis points or even more for high-risk borrowers. Mark Zandi, co-author of the analysis, told Politifact that the number Harris's campaign used was an estimation for the middle range of what could happen. The study is predictive and explores what could happen, not what will happen. There wasn't a precedent for taking the country's biggest mortgage makers into conservatorship and there isn't a precedent for unwinding that action.
Although Trump has disavowed Project 2025, that doesn't mean that GSE reform isn't on his radar. It was something that the former U.S. Secretary of the Treasury, Steven Mnuchin, looked at during the Trump presidency. In 2019, Mark Calabria, the former Director of the Federal Housing Finance Agency, was tapped to work on different ways it could be done.
Some investors have already speculated that a second Trump presidency could continue the work of the first one when it comes to GSE reform. However, the difficulty of accomplishing it the first time shows how complex that unwinding process could be.
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This article Harris Says Privatizing Fannie Mae And Freddie Mac Could Add $1,200 To Mortgage Costs: Is She Right? originally appeared on Benzinga.com