“The mortgage market is stronger than ever before, and that includes Fannie Mae and Freddie Mac. Both businesses, and both management teams, get stronger by the day,” Federal Housing Finance Agency (FHFA) Director William J. Pulte wrote yesterday afternoon in a post on X.
“Almost strong enough to release them?” one commenter replied.
Indeed, both Pulte and President Trump have emphasized making money — and saving American homebuyers money, helping crack that pervasive housing affordability problem — via adjustments to the two government-sponsored enterprises, or GSEs.
The idea has been floated to again trade shares of Fannie and Freddie on a major stock exchange like the NYSE, while maintaining implicit government guarantees of the two companies, as a way of doing that. Fannie Mae and Freddie Mac were removed from trading on the NYSE on July 8, 2010 — a decision that was made by FHFA.
To hear more about potential changes to the GSEs, National Mortgage Professional spoke with Marty Green, principal at Polunsky Beitel Green, a San Antonio, Texas-based law firm specializing in serving residential mortgage lenders.
NMP: Will the Trump Administration move to take the GSEs public and/or remove them from government conservatorship?
Green: I think that it's definitely true that [the Trump Administration] would like to get [the GSEs] out of conservatorship, and I think that it is becoming a higher priority now than it was at the beginning of the administration.
There are a couple of reasons for that. One is that this administration will be over in three and a half years, so the clock is ticking, and if they're going to get it done, they've got to start the process sooner as opposed to later.
I think one of the things this administration would like to be known for is that they were successful at getting Fannie and Freddie out of conservatorship and onto whatever their future might look like. They would like that change, and they would also like to make the policy decisions that underpin that change.
The motivation is there for them to do all of that, but it's just fraught with all kinds of political considerations that make it difficult — particularly if you're going to change them dramatically from what they've been historically.
So I think one of the things that you’ll see is less of a motivation to potentially change them as dramatically as some have proposed in the past, where there's less government involvement in the guarantee.
President Trump has been very vocal that he understands that that guarantee brings with it lower interest rates for the American people. This is a way to ensure that rates don't go up as a result of the conservatorship being ended, and the companies being spun back out into the public.
But even with that government guarantee, there’s still a ton of issues that you have to start walking through and really build a framework around what this needs to look like. That's where the heavy lifting is going to be done.
NMP: Will bringing this change, whatever it ultimately looks like, to Fannie Mae and Freddie Mac improve affordability in U.S. housing?
Green: It could. Even having some certainty as to what's going to happen with Fannie and Freddie could help affordability, just because the uncertainty [regarding their situation] is out there. That's something that could be impacting rates at least somewhat.
It really depends on some of the policy choices they make. There are some things they could do.
For instance, right now there are a fair amount of loan-level price adjustments built into mortgage rates along the way that they could suspend, or at least lessen their impact, and that could have a positive effect on rates across the board.
Is it possible that they could make some policy choices here that could improve affordability? The answer is, absolutely. But those come with a cost. And some of that cost is from things that compensate for risk and help Fannie and Freddie build up capital that facilitates this exit from conservatorship.
So, when you start trimming those things, it makes it more difficult. And then, obviously, public shareholders would want to be sure that they're getting a return on their investment. That’s also very, very important.
The devil's going to be in the details of all of this, because there are a lot of competing goals here. The policy choices they make on each one of them could really have a dramatic impact on what you end up with at the end of the day.
NMP: What would these potential changes at Fannie Mae and Freddie Mac mean to the mortgage industry? Our readers are primarily mortgage loan officers, brokers, and independent mortgage bankers.
Green: I think the answer is, we don't know yet — because we don't know what the framework is going to look like. That's one of the reasons you're getting such a broad spectrum of opinion on it.
Some people look at Fannie and Freddie today and compare that to what they were before 2008, and they prefer the pre-2008 version of them. Others look at today and this is what they're familiar with, so any change to that is a little scary to them.
But we don’t really know what the ultimate impact is going to be without knowing what that framework looks like. There's a lot of things across the board, a lot of policy choices that the administration could make.
For instance, they could choose to convert the preferred shares that the Treasury currently has a liquidation preference on, and the government becomes the largest shareholder of Fannie and Freddie, post-conservatorship. Or they could choose something else where there's not a shareholder component, but the government has oversight and board seats and other things.
Until you know more about the policy choices that they're going to make, it's really hard to estimate or really contemplate how this is going to impact the mortgage market generally — much less how it's going to impact individual LOs, for example.
NMP: From the opposite perspective, what could these potential changes at Fannie Mae and Freddie Mac mean for homebuyers?
Green: One of the changes that we see in terms of the proposals from the administration is limiting the scope of what Fannie and Freddie do. Right now, Fannie and Freddie provide single-family and multi-family mortgage liquidity.
But in the single-family space, that involves not only purchases and refinances of primary residences, but also providing liquidity for investment properties and second homes. So you could, for instance, see a proposal where we limit the scope of the GSEs to primary residences in the single- family space.
That could have a dramatic impact on second homes and investment properties, because then you would only have private sector support for those segments. That could drive up financing costs.
Even then, we might find that the secondary market is still reasonably robust and it's less necessary for Fannie and Freddie to be in that space. But that's one area where you could see some differences.
I think the fear for everyone is that you're going to do something here that'll actually drive up costs, and that’s a real consideration for the American taxpayer who is also the beneficiary of that.
NMP: Whatever a new framework for Fannie Mae and Freddie Mac might look like, how important is it for the federal government to maintain its implicit guarantees of the two companies?
Green: It's crucial, really, across the board.
Mark Calabria, who was in the first Trump Administration and is working with them again, has been a very strong proponent of Fannie and Freddie exiting conservatorship, but he has made a very valid point: Does anyone really believe that even after a spinoff, that the government would let Fannie and Freddie fail?
It would be too devastating to the housing market, which is something like 20% of the U.S. economy. If you have something that's critical to 20% of your economy, it by definition is too big and too critical to fail.
The implicit guarantee is there just by the sheer scope of what they do, irrespective of what the government says about that guarantee.
Today, even though Fannie and Freddie are in conservatorship, if you buy an MBS, it says on the front of it that it is not guaranteed by the full faith and credit of the United States, it’s been guaranteed by Fannie and Freddie.
But what we know we have on the backside of that is government having plowed almost $200 billion into the two enterprises after the 2008 crisis to ensure that they had the wherewithal to stand behind that guarantee.
You believe in the actions a little more than you do the words sometimes. Just as a practical matter, that government guarantee is probably going to be there, just because of the sheer scale and scope of the two organizations and how critical they are to the U.S. economy.
