Economy

How Biden and Trump differ on housing-finance reform.

(Market Watch) – For more than a decade, housing-finance giants Fannie Mae and Freddie Mac have remained in conservatorship after being bailed out amid the Great Recession.

Fannie and Freddie’s investors have been kept in limbo throughout those years — they’ve watched as the enterprises’ profits were swept to the Treasury Department to repay the federal government, and they’ve gone without a dividend in that time.

Glimmers of hope have emerged for Fannie and Freddie’s investors during the Trump administration. Last April, Vice President Mike Pence’s former chief economist, Mark Calabria, was confirmed as the director of the Federal Housing Finance Agency, the main regulator overseeing Fannie Mae and Freddie Mac. Since assuming that post, Calabria has worked to begin recapitalizing the two enterprises after ending the years of profit sweeps.

Also last year, Fannie and Freddie’s investors notched a court victory when the Fifth Circuit Court of Appeals ruled that the structure of the FHFA was unconstitutional. That case is set to be heard by the U.S. Supreme Court in coming weeks.

But with former Vice President Joe Biden leading in the polls, the presidential election could determine the fate of Fannie Mae and Freddie Mac — and the broader housing-finance ecosystem.

The Supreme Court’s decision will prove crucial

On Dec. 9, the Supreme Court is set to hear oral arguments in Collins V. Mnuchin, a case that will determine whether the structure of the FHFA is constitutional. Fannie and Freddie shareholders brought the lawsuit in question. In 2012, the FHFA began sweeping the profits of the two mortgage giants to the Treasury Department to repay the funds the government used to bail them out.

The case, in many ways, mirrors one the Supreme Court has already decided. Earlier this year, the court ruled that e Consumer Financial Protection Bureau’s structure was unconstitutional. Like the CFPB, the FHFA has a single director, who as of now is appointed by the president for a five-year term, but cannot be removed by a subsequent president.

Most observers expect the Supreme Court to rule similarly in the FHFA case — particularly with conservative judge Amy Coney Barrett expected to be named to the court.

But that outcome could endanger the prospects of Fannie Mae and Freddie Mac being recapitalized and released from their government conservatorship.

Biden is likely to take a different perspective on housing-finance reform

Last year, the FHFA and the Trump administration presented a comprehensive plan for reforming Fannie, Freddie and the broader housing-finance system. Many of the proposals they made required congressional action — but some did not, including allow Fannie and Freddie to begin retaining the profits they earn.

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