For 10 years now, Fannie Mae and Freddie Mac have been in government controlled forced conservatorship however, that could be ending soon, this month in fact.
As part of the Trump administrations proposed sweeping overhaul of the federal government, a plan to revolutionize the country’s housing finance system is on the table. Called the “Reform Federal Role in Mortgage Finance” the Trump administration is wanting to end the conservatorship of Fannie and Freddie, essentially privatizing the Quasi Government Supported Entities that are responsible for more than 90% of all mortgage debt in the country.
You see, for the past 10 years, the federal government has been the single largest stock holder and as the housing economy has turned around, they have been raking in the cash. In fact, some profit estimates have the fed making about 88 million dollars. With such huge profits, why would the government give up it’s stock holdings now?
The government answers that question by stating, “This proposal would transform the way the Federal Government delivers support of the U.S. housing finance system to ensure more transparency and accountability to taxpayers, and to MINIMIZE THE RISK TO TAXPAYER-FUNDED BAILOUTS, while maintaining responsible sustainable support for homeowners,” Reform Federal Role in Mortgage Finance Summary Section. My point is, anyone making 88 million in a stock doesn’t just up and sell it unless they know holding the stock isn’t going to be as profitable. Let me be clearer. When investing in property, it’s all about timing. We all want to buy low, sell high. A mantra of investing that’s almost become cliché. None the less, it’s true. With the federal government deciding to sell their stock on a 88 million dollar profitable return, I’m left wondering, are they timing the market and know it’s now time to get out? For goodness sake, they say as much in the summary that I quoted just above.
Make no mistake friends, the Federal Reserve and Treasury Departments have access to all sorts of information that you and I don’t. As such, many times we are left to reading the tea leaves or peering into crystal balls but, in my humble opinion, this actions by the Trump administration is the proverbial “writing on the wall”. Here locally, the housing market has been slowing since April 2017. We are all noticing it, homes are seeing more price reductions, longer days on market and sellers are offering more concessions. Looming tariff trade wars, Europe in the grips of a recession and now the Fed and Treasury want to jump out of a 88 million dollar cash cow…….it seems clear to me, I hope it’s clear to you.