Trump Officials: Mortgage System Worse Today Than Before 2008 Financial Crisis
Trump administration officials warned on Tuesday that mortgage financing in the U.S. is worse off today than it was in the lead up to the 2008 financial crisis, according to Politico.
The warning came as debate began over the Departments of Treasury and Housing and Urban Development’s plans to overhaul the housing financial system, which would include releasing mortgage giants Fannie Mae and Freddie Mac from federal control.
The two financial institutions stand behind half of the nation’s mortgages, the officials noted, and are severely undercapitalized. They also said that lending standards have only deteriorated since the financial crisis, which was spurred by a crash in the housing market.
Before releasing Fannie Mae and Freddie Mac, the Trump administration’s plan would build the companies’ capital, in order that they might be able to weather another economic downturn on their own.
“I will tell you as a safety-and-soundness regulator, when I look at a $3 trillion institution that is leveraged 1,000 to 1, it keeps me up at night,” Federal Housing Finance Agency Director Mark Calabria, the companies’ regulator, told the Senate Banking Committee, adding, “If we do nothing, this is going to end very badly.”
While Republicans on the committee were primarily concerned with growing risks within the system, Democrats were focused more on access to affordable housing.
Treasury Secretary Steven Mnuchin, HUD Secretary Ben Carson and Calabria agreed that Fannie Mae and Freddie Mac “are systemically important companies [and] that they continue to be too big to fail.”
But when Sen. Mark Warner (D-Va.) asked if the companies should be subjected to more intense oversight by the Financial Stability Oversight Council, “the uber regulator created after the crisis to spot emerging risks in the financial system,” Mnuchin deemed such a move unnecessary.
“Before we raised public capital, we would make sure we understood that there was enough capital so that they did not need to be designated” as "systemically important" he said.
Warner was not appeased, saying, “It appears to me from your administrative proposals, we could end up with a system that actually doesn’t end too-big-to-fail and doesn’t increase affordable access to credit — that is a grave concern to me.”
He added that the Trump administration’s plan is “going to put us right back to where we were prior to 2008.”
As Democrats repeatedly raised concerns over addressing affordable housing, the Trump officials merely conceded that not everyone should own a home.
Mnuchin said that “there may be certain people today who really shouldn’t get a mortgage because they can’t afford them.”
Carson tossed in his agreement: “Certainly there are some people who probably should not be mortgage owners — in many cases very disabled people, elderly people, people who are drug-addicted, who are not going to be able to make the payments. We have other programs for individuals like that."