steven mnuchin is a stranger to government, but president-elect donald trump <u+2019>s pick for treasury secretary certainly has experience in the mortgage market<u+2014>and he appears intent on rapidly changing housing finance policy. mr. mnuchin said during an interview wednesday on fox business that fannie mae and freddie mac should be released from government control and that the trump administration <u+201c>will get it done reasonably fast.<u+201d> shares of fannie and freddie soared in response, rising by more than 40% wednesday. the stocks have nearly tripled in value since election day. both companies have been wards of the state since their 2008 collapse resulted in a takeover by the federal housing finance agency and a $187 billion bailout by the u.s. treasury. given that, housing finance is an area in which the treasury secretary can have outsize influence. mr. mnuchin, for instance, will have to decide on the new administration<u+2019>s policy toward lawsuits involving the companies. he also has say over the status of their conservatorship, under which they are wards of the state. fannie and freddie continue to play a crucial role in housing. they back the majority of new mortgages and, together with government agency ginnie mae, issue nearly all new mortgage bonds. the independent federal housing finance agency officially oversees fannie and freddie, acting as their conservator and primary regulator. when they were taken over, treasury signed bailout agreements with the companies in which it promised to purchase enough preferred stock to restore each company to a positive net worth. some shareholders have argued that the companies should be released to private control. several have filed lawsuits claiming a 2012 change to their bailout agreements, under which they deliver nearly all their profits to treasury, is illegal and unfair. yet some analysts are skeptical much will change quickly. jim vogel, a strategist at ftn financial, pointed out that housing finance played almost no role during the campaign, making it unlikely to become a top priority for the administration. <u+201c>when you talk about what<u+2019>s driven the renewed sense that the world<u+2019>s changing, it<u+2019>s taxes, trade, maybe regulatory reform. it<u+2019>s not housing finance,<u+201d> he said. while mr. mnuchin will direct the administration<u+2019>s response to fannie and freddie, congress also will play a role in any housing-finance overhaul. and there are strong views, particularly within the house of representatives, about the future shape the two firms should take. for instance, rep. jeb hensarling (r., texas), who is chairman of the house financial services committee, has sponsored legislation, known as the path act, that would effectively<u+00a0>shut down fannie and freddie. with home prices on the rise and the market finally healing, the housing industry may also again express concern that any overhaul effort could undermine a recovery. mr. mnuchin at least has the advantage of being intimately familiar with this market . at goldman sachs , where he was a partner, mr. mnuchin headed mortgage-bond trading. he is probably best known for his role in the revival of failed bank indymac, which was renamed onewest bank and eventually sold to cit group inc. mr. mnuchin ran the bank and was involved with its efforts to deal with soured loans after the housing meltdown, something which has drawn criticism due to onewest foreclosures. an added wrinkle: hedge-fund manager john paulson served on onewest<u+2019>s board of directors when mr. mnuchin ran the firm. mr. paulson<u+2019>s firm is a major holder of preferred stock in fannie and freddie and believes the government<u+2019>s sweep arrangement is improper. mr. paulson supported mr. trump<u+2019>s candidacy and was an adviser to the trump campaign on housing-finance issues. fannie and freddie have since returned to profitability, but treasury is still obligated to provide up to $258 billion of additional assistance, if needed. the $258 billion is the amount remaining of the $400 billion treasury committed to support the companies under the bailout agreements. this arrangement gives treasury a big role in deciding the companies<u+2019> future. under the bailout agreements, the fhfa is prohibited from even seeking to release them from their conservatorships without treasury<u+2019>s permission. and each company is obligated to pay nearly all profits to treasury each quarter. fhfa director melvin watt highlighted treasury<u+2019>s authority over fannie and freddie<u+2019>s status in november 2014. when it comes to any move to end their conservatorship, mr. watt said that it was <u+201c>something that would have to be initiated by treasury, not by me.<u+201d> the obama administration consistently maintained that fannie and freddie had a fundamentally <u+201c>flawed business model<u+201d> and that their conservatorships should only be ended as part of a broader package of housing finance reform, preferably one that would involve winding the companies down. that could now change. write to john carney at john.carney@wsj.com
what treasury nominee steven mnuchin means for the mortgage market  - wsj
john carney