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It's been nearly nine years since Fannie Mae and Freddie Mac got into financial trouble and had to be placed in conservatorship. The mortgage giants needed a cash infusion of $188 billion, and they got it from the U.S. Treasury. The bailout worked. In fact, the government has so far netted $81 billion on top of what it originally spent. But Fannie and Freddie are still in conservatorship, and it's not clear how they'll get out and become independent again. Charles Lane from member station WSHU reports.
CHARLES LANE, BYLINE: When Fannie and Freddie started earning profits again, the government started taking them. Richard Bove is a bank analyst for Rafferty Capital.
RICHARD BOVE: The government made the decision that, hey, we put all this money into these companies; we took all the risk of turning them around, so we're going to take everything, and the shareholder's going to get nothing.
LANE: He says the government took such extraordinary actions to preserve something very sacred to Americans - the 30-year fixed-rate mortgage.
BOVE: You get rid of the 30-year fixed-rate mortgage. The price of housing in the United States goes down. The equity of the typical homeowner could be wiped out.
LANE: Not just homeowners either - real estate brokers, mortgage banks, construction companies. Some 15 percent of the U.S. economy hinges on the 30-year fixed-rate mortgage. It's popular, and it's existed for a long time because Fannie, Freddie and the U.S. government have been backstopping it.
Tax dollars haven't been needed recently because housing prices are up, and Fannie and Freddie still have capital reserves. But that safety net runs out at the end of the year. So if the economy were to fall into recession and home prices dropped, the government could end up cutting checks to Fannie and Freddie again. David Stevens, president of the Mortgage Bankers Association, says this could have a psychological impact on Congress.
DAVID STEVENS: These are very large issues at play, so I understand the tension on all sides here. Our goal is to make sure that we don't disrupt the housing system.
LANE: Fannie and Freddie make up half of the mortgage market, so any changes to them will affect the interest rates for all new mortgages. Stevens says the conundrum that lawmakers are trying to solve is how to keep home prices affordable by keeping the 30-year mortgage but to do it without having taxpayers take all the risk.
Several plans have been floated. Jim Parrott authored one for the Urban Institute. He says all of them are variations on private investors taking the first losses when homeowners default with the government overseeing.
JIM PARROTT: Where they differ is in how much the government is going to manage versus how much is going to be pushed out into the private market.
LANE: One plan would turn Fannie and Freddie into something like a public utility closely regulated by the government. Another plan would turn them into a government corporation with a board of directors appointed by the president and shareholders who earn regular dividends. Parrott says his plan would mean fewer rules to write, but all of them could in theory allow lawmakers to tinker with policy goals like expanding homeownership.
PARROTT: There's some question of exactly how you impose the obligations, how you set up the incentives among private actors. It's certainly more complex to do it that way than it is just to have the government do it.
LANE: The Trump administration considers fixing Fannie and Freddie a top priority. Treasury Secretary Steve Mnuchin recently told senators that he's committed to preserving the 30-year mortgage even if it means the creation of a special fund.
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STEVE MNUCHIN: I would expect that it would be paid for, and I would expect that it would hopefully never be hit - no different than there's an FDIC insurance fund or an FHA insurance fund.
UNIDENTIFIED MAN: OK.
LANE: So far, the Senate has taken the lead in crafting the future of housing finance, and they've done so in what observers say is an impressively bipartisan way. This helps put the housing industry and Wall Street at ease. They are urging a gradual, multi-year transition in order to avoid shocking this $10 trillion system. For NPR News, I'm Charles Lane. Transcript provided by NPR, Copyright NPR.