Why Trump’s housing revolution risks mortgage turmoil

Donald Trump is looking for what might become the “largest deal in history” and the risks cannot be higher.

It can bring hundreds of billions of dollars to the public wallet and promote home ownership. Or you can send mortgage rates to rise.

The deal is the fate of Freddy Mac and Fanny May, the mortgage giants who together returned about 7 trillion dollars (5.2 trillion pounds) from the mortgage market of $ 12 trillion – the amount of twice the size of the UK economy.

The government -sponsored institutions (GSES) almost during the financial crisis and were rescued by the US Treasury in 2008.

Over the past 17 years, they have been in preserving the government, which means that they are ruled by the Federal Housing Agency (FHFA), with an explicit government guarantee behind their loans.

Now, the president wants to start spending.

“I consider a very serious consideration to take Fanny and Faridi Mac for the public,” Trump wrote on the social fact, on May 21, Trump wrote on May 21.

“Fanny and Faridi Mac in very good condition, they teach a lot of money, and it seems that the timing is right. Stay!”

GSES has a total net value of about 161 billion dollars. The sale of part of these shares may compete with the first general offer of AramCo of $ 25.6 billion (IPO) as the largest list in history.

But there are major possible problems.

It is not clear what will be the comparison between the Treasury share in GSES and private sector investors, who include many billionaire Trump supporters. The deal raises questions about the threats of financial stability, and there are risks that can push mortgage rates up.

In early June, a group of 14 Democratic Senate members, led by Elizabeth Warren, wrote to the director of FHFA William Polly that the result may be “catastrophic”.

Fani and Faridi are enormous. Between them, they support about 70 % of the American mortgage market. “In 2007, they were a large part of the market, and now they are almost entirely,” says Jim Barrot, of the Urban Institute.

GSes works by buying mortgage loans from banks. They collect real estate loans in confidence funds and cut them to issue securities -backed by mortgage (MBS), an investment vehicle similar to the bond. Then these are sold to insurance companies and pension funds.

Fani and Faridi earn fees by guaranteeing religion. This is one of the foundations in the American financial system.

There are many good reasons for the termination of conservation, which was supposed to be a temporary measure of the crisis.

Aaron Klein, an older colleague in the Brukinsian Institute, says that the opening of GSES to private capital will free them with the conditions of lending that alienate the risk of the government and opens the real estate borrowing of buyers for the first time.

However, tampering with it would risk the release of infection across the financial sector.

One of the most important questions is what happens to guarantee the government – at a value of about $ 250 billion – if GSES leaves memorization.

Analysts have warned against losing government guarantee that could add a full percentage to mortgage rates. This will take the average repair rate for 30 years to more than 7.7 %-walk with the highest level in 23 years and that was done in 2023.

“It is important that this is [exit] To be accomplished in time and this is not this time. “

Management is careful of the risks. “The most important scale” will be the influence of mortgage rates, “said Scott Bessin, Minister of Treasury, in February.

In another publication on May 27, Trump said: “I want to be clear, the United States government will maintain its implicit guarantees, and I will remain strong in my position to supervise it as president.”

However, the “implicit” guarantee is not the same explicit guarantee present.

“The guarantee is not enough.” “The market has become addicted to the presence and removal of this background in its place that creates all kinds of fluctuations.”

Lippie Cantril, head of Pimco’s public policy, one of the largest participants in the MBS market, says that without an explicit government guarantee, there will be credit risks linked to securities backed by Freddy and Vanie -backed mortgage that had not been present before.

This will reduce those who can buy securities -backed by mortgage. If there are fewer investors, they will request higher rates, which means high costs of home buyers.

Analysts argue that an explicit guarantee may remain valid without a great danger to the taxpayer. Freddy and Vanny wrote in good condition. Goldman Sachs says that the possibility of the need to benefit from the warranty is “far away.”

But an explicit guarantee situation will require congressional, as well as passing a law to achieve this.

One of the paths that the president apparently explores is actually not ending the memorization at all.

“We are actually studying to keep the stadium and take it publicly,” William Polly, FHFA director, told CNBC.

This may solve the issue of guarantee, but it may also not mean any way to expand mortgage lending.

Another big question for taxpayers is how the cabinet decides to treat the shareholders of Fani and Faridi others.

Trump’s first publication publication on May 21 sent the shares of Freddy Mac and Vanie May-which publicly available on a medical cup-increased by 42 % and 50.6PC, respectively.

The markets were betting that the launch of the GSES from Conservatorship would make huge profits for private shareholders, which includes Bill Akman, supporter of the hedge funds from Trump, who was highly defending the plans.

Akman said at the end of last year: “Trump admires big deals and this will be the biggest deal in history. I am sure he will accomplish it,” Akman said at the end of last year.

The last Trump ally, John Paulson, was an investor in Fanny and Faridi.

But winning the shareholder means the contradictions.

In exchange for the cash injection of its crises, the Treasury has received favorite shares in Fanny and Faridi – a claim of $ 348 billion now.

It also effectively has 79.9PC of regular stocks. In other words, Frani Faridi owes the government with more than twice its pure value of $ 161 billion, and the treasury demands come first on any other private shareholder.

Therefore, there are expectations that the cabinet would be some of its claims so that the deal works better for the benefit of private shareholders, the president’s friends.

“If this is done correctly, this may be a victory for taxpayers and can help millions of Americans reach real estate loans,” says Klein.

“If you make a mistake, this may be a tremendous looting. It may take hundreds of billions of dollars from taxpayers and reward for hedge funds and speculators.”

In the end, no one knows what the president will do. “It is not very clear where we all go,” says Barrot.

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