Plan for Fannie, Freddie; Fed likely to go easy on rate cut

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Privatization plan

The Trump administration announced a plan to return Fannie Mae and Freddie Mac to the private sector, “a development that could keep the companies at the center of the housing market for decades to come,” the Wall Street Journal reports. The proposal “represents a major reversal from what leaders of both parties over the past decade promised — to abolish the companies, which guarantee roughly half the U.S. mortgage market. The approach, which doesn’t require approval by Congress, would mark an important win for investors who have been betting politicians wouldn’t follow through on those promises.”

The plan means “America’s mortgage-finance system isn’t going to change in a fundamental way for the foreseeable future,” the paper adds. “That is the inescapable — though to many parties deeply disappointing — takeaway” from the housing reform plan issued by the Treasury Department. Fannie Mae and Freddie Mac, “which have been wards of the state for 11 years, are likely to remain so for some time.”

Some of the administration’s 49 recommendations in the proposal need Congress to act, according to the New York Times, which notes, these proposals “are unlikely to find an eager audience in Congress, which has been deeply divided on the issue and is now consumed with other fights in the run-up to the 2020 elections,” the New York Times says.

Under the plan, Fannie and Freddie “would be turned back into private companies but would be required to pay taxpayers a fee for government protection. It would also open the market up to competitors for the first time,” the Washington Post reports.

The plan makes clear that the Treasury’s “ultimate preference is for Congress to take up reform of the government-sponsored enterprises,” American Banker says. “That legislation would include an explicit government guarantee, and a new Ginnie Mae-provided backstop for guarantors competing on par with Fannie Mae and Freddie Mac.”

Treasury Secretary Steven Mnuchin said the plan “would not imperil the 30-year fixed-rate mortgage,” the Financial Times reports. The plan would let Fannie and Freddie “keep more of their own profits, rather than returning as much to the government as they have had to do under the terms of their bailout," the paper says. "Recapitalizing them in this way could make their shares more attractive to investors in a privatization.”

Wall Street Journal

Slow steps

The Federal Reserve is “gearing up to reduce interest rates at [its] next policy meeting in two weeks, most likely by a quarter-percentage point, as the trade war between the U.S. and China darkens the global economic outlook. The idea of an aggressive half-point cut to battle the slowdown hasn’t gained much support inside the central bank.”

Prudent deal

Prudential Financial agreed to pay $2.35 billion to buy Assurance IQ, an online startup “as traditional life insurers seek to reach digital-savvy customers who shop on the internet.” Prudential believes that Assurance “can help it solve a decades-old problem bedeviling many of the biggest names in life insurance: selling to middle-class clients. The deal is part of a trend in which traditional life insurers are pairing with what are known as insuretech firms to reach new audiences and benefit from data analysis driven by algorithms.”

Quotable

“Our view is that the government footprint has become too big. There are people in Washington who are happy to leave this the way it is for another 10 or 20 years, and that’s not us. We feel an obligation to try to fix this.” — Treasury Secretary Steven Mnuchin, announcing the Trump administration’s plan to return Fannie Mae and Freddie Mac to the private sector