Fannie Mae and Freddie Mac

For decades, the mortgage giants Fannie Mae and Freddie Mac were the fat and happy foundation of the U.S. housing market. By buying and packaging home loans into bonds and absorbing much of their risk, they made it easier for homebuyers to get mortgages, and to get them on easier terms than are available in most countries. Created by the government and then spun off as shareholder-owned corporations, Fannie and Freddie churned out steady profits, as investors treated their debt as virtually risk-free. It was the best of both worlds — until the housing market melted down in 2008. The government's bailout of Fannie and Freddie has cost $191 billion. Since the agencies returned to profitability, they’ve repaid that amount and almost $100 billion more — and the housing market is more dependent on them than ever.

President Donald Trump has pledged to free Fannie and Freddie from government control, and has a plan to do that without involving Congress, where a series of ideas for revamping the agencies have stalled. Responsibility for making that work lies with Treasury Secretary Steve Mnuchin and Mark Calabria, the head of the Federal Housing Finance Agency, which oversees Fannie and Freddie. Two of the biggest issues to be resolved are ensuring that they have enough capital to avoid needing another bailout during a downturn, and what kind of limited backstop the government would be willing to provide if that cushion wore thin. In 2019, Calabria and Mnuchin changed the terms of the old bailout to allow the companies to keep more of their profits, and Calabria has rewritten regulations about the size of their capital buffer. Democrats have reacted coolly to Trump’s plan. Mike Bloomberg, who’s running for the Democratic nomination to be Trump’s opponent in the November election, has put forward a very different approach: merging Fannie and Freddie to create one company officially backed by the government. (Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.) Meanwhile, the companies also remain embroiled in a number of lawsuits filed by investors over the huge payments the agencies have made over the years to the government. As 2020 began, the Supreme Court was considering whether it would intervene in the wake of an appellate court victory for the investors.