Moments after solidifying his presidential run with impressive primary poll results from Marist, former New York City mayor Michael Bloomberg released his financial reform policy, which includes reinstating tougher banking and trading regulations axed by the Trump administration.
However, Bloomberg’s plan to merge Freddie Mac and Fannie Mae has garnered the most attention within the real estate and mortgage industries, as the companies work to end a 12-year government conservatorship.
“Fannie Mae and Freddie Mac, the mortgage guarantors that make the traditional 30-year home loan possible, have been under state control since the government bailed them out in 2008,” Bloomberg explained in his nine-page plan. “The Trump administration wants to return them to approximately the same form that set them up for failure: a quasi-governmental hybrid in which private shareholders benefit in good times, and taxpayers stand by to cover losses when crises arise.”
After the 2008 housing and subprime mortgage crisis, the Obama administration rolled out a plan to save Fannie Mae and Freddie Mac by allowing the U.S. Treasury Department to purchase up to $100 billion in preferred stock and buy mortgage-backed securities, thus placing them under total government control. The bailout cost taxpayers $187.5 billion, $116 billion of which went to Fannie Mae and $71 billion of which went to Freddie Mac.
Both companies have paid their debts and reached profitability, with the Federal Housing Finance Administration (FHFA) hiring Houlihan Lokey, an investment banking firm, to help Fannie Mae and Freddie Mac draft a plan to end government conservatorship and reopen the playing field for private investments.
“We are focused on making changes that position us as a return-oriented company,” Fannie Mae Chief Financial Officer Celeste Brown said according to a previous Inman article.“We are taking actions to prepare for, and or facilitate, a conservatorship exit as well as to ensure we are ready to operate in a post-conservatorship environment.”
However, Bloomberg wants to block Fannie and Freddie’s plan by merging the two companies into a “single, fully government-owned mortgage guarantor” that transfers “downside risk to private investors via specialized securities” so the government and taxpayers aren’t overstretched in the event of another mortgage crisis.
Bloomberg surprised economists and industry professionals with his plan, which they believe is Bloomberg’s attempt to shed his past as a Wall Street-friendly politician and gloss over past alleged transgressions.
“Our sense is that these proposals are primarily intended to blunt progressive attacks, especially with Bloomberg joining the debate stage for the first time on Wednesday evening,” Compass Point Director of Policy Research Issac Boltansky told Bloomberg News. “The overarching tone of the proposals underscores the populist shift in the Democratic party and the heightened potential for significant policy shifts.”
“[He’s] throwing Wall Street under the bus, perhaps ahead of being pilloried for using his billions to outspend his rivals ten-to-one, and amid a flurry of negative news coverage rehashing his alleged sexism, racism and other alleged transgressions as a mayor and CEO,” added Capital Alpha’s Charles Gabriel and Ian Katz. “[Although] the plan will annoy a lot of his friends on Wall Street, his ideas would either be forgotten or rejected by lawmakers and regulators if Bloomberg were to win the presidency.”
Former Mortgage Bankers Association CEO David Stevens took a more neutral approach, telling HousingWire on Tuesday that everyone “should read” Bloomberg’s plan.
“Mike Bloomberg rolled out his financial reform policy today, and it’s something everybody should read,” Stevens said. “You have to stay on top of news sources and analysts who are writing about these topics because you have to be thinking about how this may impact your business in the future.”
“Things can shift pretty dramatically when you get a regime change at the White House no matter which way it goes – Democrat to Republican or Republican to Democrat,” he added.
