With topics like the Supreme Court and COVID-19 dominating the election news cycle, the future of housing finance reform has received relatively little attention outside of the industry. Given its economic importance, though, that situation is likely to change soon.

While there are few details from the Biden camp, the Trump administration has been working to build private capital at Fannie Mae and Freddie Mac, aiming to end the companies’ 12-year government conservatorship.

Under Director Mark Calabria, the FHFA has proposed a new capital framework for Fannie and Freddie, one that helps prepare them to go back into the “private” market. According to Calabria, “My job and my statutory mission is to make sure that the enterprises never again fail the millions of families whose financial futures depend on a stable mortgage market. To do this, they must build capital.”

It seems like a safe bet that a second Trump administration would continue on this path.

A recent Wall Street Journal article attributes the administration’s approach to “the Republican Party’s emphasis on limiting the government’s role in the economy.” Perhaps Trump and Biden really do have “divergent views on the federal government’s role” in the mortgage market, but this characterization of the administration’s approach seems like a bit of reach.

Prior to their 2008 government conservatorship, the two ostensibly private companies had a line of credit at the U.S. Treasury, and their mortgage-backed-securities (MBS) came with an implicit federal guarantee. That is, everyone knew that if the companies failed, the federal government would make sure that those MBS still paid out the promised interest and principal payments. Absent an Act of Congress, releasing the companies reverts to that same “implicit” arrangement.

How many other private companies have such a luxury?

Additionally, the Treasury Department’s official Housing Reform Plan supports converting this implicit guarantee to an explicit one. Page two of the report states that “Although Treasury does not believe a Government guarantee is required, Treasury would support legislation that authorizes an explicit, paid-for guarantee backed by the full faith and credit of the Federal Government that is limited to the timely payment of principal and interest on qualifying mortgage-backed securities.”

This position suggests that the Trump administration is not overly interested in limiting the federal government’s role in housing finance.

As for the Biden plan, the Journal notes that “Democrats have no immediate plans to return the companies to private ownership.” The fact remains, though, that without congressional action the two GSEs will remain backed by the U.S. government regardless of whether they exit conservatorship.

One of the few details announced in the Biden plan, however, deserves closer attention.

As the Journal notes, “The one explicit mention of Fannie and Freddie in a Biden housing-policy blueprint calls for boosting a government-run affordable-housing trust fund by $20 billion, by increasing assessments charged by the mortgage giants.” According to the Biden website, “These additional dollars will support the construction and rehabilitation of affordable housing units.”

For starters, this figure is an enormous increase in the trust fund compared to current law. In both 2018 and 2019, HUD reported that approximately $250 million was available in the fund.

Averaging the annual number of single-family mortgages purchased by Fannie and Freddie from 2017 to 2019, the two companies (combined) purchased almost 3.5 million mortgages per year. That means the assessment necessary to accumulate $20 billion in the trust fund would be close to $6,000 per mortgage. (The annual quantities are available in annual reports, such as this one and this one.)

In practical terms, Biden plans to charge single-family borrowers thousands of dollars to support public housing. That’s some plan.

Aside from this kind of proposal, there is unlikely to be an enormous difference in housing finance reform under a new Trump administration and a Biden administration unless Congress acts.

Sure, a Biden administration will most likely try to weaken many of the reforms undertaken by Calabria’s team at the FHFA. But that process will take time. It will be difficult to completely undo, for example, new GSE capital requirements.

Regardless of who is president, all the momentum is on the side of pushing Fannie and Freddie back into the private sector at some point in the next decade. The two biggest questions remaining are:

(1) Will there be congressional action?

(2) Will the administration—whether Biden or Trump—amend the Preferred Stock Purchase Agreements (PSPAs) with Fannie and Freddie?

The first question remains anyone’s guess. As to the second question, all the political momentum seems to suggest that an amendment is coming. Raising new capital in the equity markets will likely be too difficult without some kind of amendment to lower the GSEs’ financial burden under the PSPAs. Of course, this sort of change to the PSPAs amounts to another bailout, so it is critical that any amendment provide taxpayers and prospective homeowners something in return.

Given this reality, the best outcome would include real promises to shrink Fannie and Freddie, something that can be achieved over time by lower conforming loan limits, eliminating geographic differences in those limits, and narrowing the companies’ focus so that they can only provide financing for primary single-family homes.

Implementing these reforms with a PSPA amendment is just about the only chance to move toward a more competitive housing finance market. And shrinking Fannie and Freddie’s footprint is the only way consumers will win.