The U.S. Treasury Department is set to begin the process of releasing mortgage giants Freddie Mac and Fannie Mae from government control, a key step in reforming the U.S. housing finance system.
The plan, expected to be released Sept. 5, will likely include a list of principles and goals that must be completed for the government-sponsored enterprises to be freed from conservatorship.
But the document is widely seen as the first of many steps needed before the companies can truly operate freely.
Fannie and Freddie were placed into conservatorship in the wake of the 2008 financial crisis. To keep the U.S. housing finance system afloat, the Treasury Department bailed out the GSEs by buying preferred shares of the companies.
Part of the agreement was a requirement that the GSEs pay back the government through a so-called "net worth sweep." While the GSEs were allowed to continue buying and selling mortgages, any money earned above a set amount would go to the Treasury Department.
Keefe Bruyette & Woods public policy analyst Brian Gardner said there could actually be two different reports issued Sept. 5: one from the Treasury Department and another from the Department of Housing and Urban Development. The Treasury report is likely to address the GSEs' "return to private ownership," while HUD's report will likely focus on structural reforms to the housing market.
Gardner said in an interview that the Treasury document will lay out principles, but a detailed timeline will not likely be included.
"Maybe they talk about goals for ending the sweep, but that's the best we can hope for right now because there's a sequence of things that need to happen for the companies to return to private ownership," Gardner said.
Compass Point policy analyst Isaac Boltansky wrote in a Sept. 1 research note that the Treasury report is likely to address recapitalizing the GSEs, include recommendations that outline potential GSE footprint reduction options and "broadly contour the conditions for ending the GSE conservatorships."
The next step, Boltansky wrote, is a more detailed plan from Federal Housing Finance Agency Director Mark Calabria on the preferred stock purchase agreement negotiations, which is expected in September or October and could be finalized by the end of 2019.
On Capitol Hill, Senate Banking Committee Chairman Mike Crapo, R-Idaho, scheduled a hearing for Sept. 10 on housing finance reform that will include Treasury Secretary Steven Mnuchin, HUD Secretary Ben Carson and the FHFA's Calabria. Passing a legislative GSE reform plan is a longtime goal of Crapo's.
