Future Of Fannie Mae, Freddie Mac On The Table Under Trump
By CHUCK GREEN and KIMBERLEY HAAS
The fate of Fannie Mae and Freddie Mac is being debated as the new Trump administration lays out its priorities for the next four years.
Let’s start analyzing the situation by looking back in time.
In 2008, Fannie Mae and Freddie Mac were in trouble. In fact, without government intervention, they faced imminent collapse, and on Sept. 6 of that year, both were placed in conservatorship by the director of the Federal Housing Finance Agency.
The conservatorships were designed to be temporary but as MBA President and CEO Bob Broeksmit pointed out in December, “grappling with the government’s role in the mortgage marketplace has been fraught with politics, complex policy details, and very real concerns about mortgage market disruptions.”
“Under Presidents Obama, Trump, and Biden, amid shifting party control on Capitol Hill, consensus on an exit strategy has proved elusive, most recently in the final weeks of the first Trump Administration,” Broeksmit wrote.
Broeksmit said the Mortgage Bankers Association welcomes the opportunity to work with policymakers to forge a path to end the conservatorships. He added that the government-sponsored enterprises, or GSEs, have provided liquidity and stability in the mortgage marketplace, enabling millions of families to achieve the American Dream of homeownership.
Since Broeksmit’s remarks were published, President Donald Trump has been sworn in for a second term and Scott Turner was confirmed as the Secretary of the U.S. Department of Housing and Urban Development.
Turner told The Wall Street Journal that privatizing Fannie Mae and Freddie Mac will be a priority. The former NFL player said he would act as a “quarterback” of sorts in the process and wants to coordinate work with Congress and the U.S. Department of the Treasury.
That led to Senate Democrats raising concerns. In a Feb. 26 letter, Sen. Elizabeth Warren (D-Mass.), Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, Minority Leader Chuck Schumer (D-NY), and nine other Senators said reprivatization of Fannie Mae and Freddie Mac “threatens to raise the cost of mortgages and rent and make it even harder to access credit for purchasing a home.”
“At a time when so many Americans are struggling with housing costs, we must ask why you are choosing as one of your first priorities a policy that only makes it harder for Americans to afford housing,” the letter to Turner stated.
The Senators said changes to the ownership of Fannie Mae and Freddie Mac would be a monumental undertaking that, if mismanaged, could compromise the country’s housing market and the broader economy.
“It could also generate billions of dollars for hedge funds and other wealthy investors in the Enterprises at taxpayers’ expense. One prominent hedge fund manager and investor in the Enterprises’ common shares has written that he sees ‘large asymmetric upside’ in investments in the Enterprises because he believes there is a ‘credible path for their removal from conservatorship’ and he expects that ‘Trump and his team will get the job done,'” the Senators wrote.
How likely is it that change will take place?
Norbert Michel, vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives, told The Mortgage Note that it is likely Fannie Mae and Freddie Mac will be taken out of conservatorship under Trump.
“I think the administration will move them out of conservatorship partly because they recognize conservatorship wasn’t supposed to be permanent and because that’s the direction things were heading during the first administration,” Michel said.
“I think it will take time, though, and I’d say it will happen later rather than sooner. And I suspect there will be some kind of deal – they’ll rewrite the Preferred Stock Purchase Agreements and adjust the liquidation preference in some way while giving them some kind of capital target timeline.”
Roger Valdez, director at the Center for Housing Economics, agrees that if change takes place, it will take time. Even though U.S. Treasury Secretary Scott Bessent wants to move forward, he is open to how that happens.
Valdez said people should not expect an immediate change, but instead heightened discussion about how to plan for the future of Fannie Mae and Freddie Mac.
“The situation’s fragile, and any shifts will require planning and consensus, something that the federal government — legislative and executive — are not very good at. I would suspect that the role of the federal government will stay the same; it’s going to be stuck like this for a while,” Valdez said.
Bessent said last week that they will consider taking on the issue of Fannie Mae and Freddie Mac, but for right now, the top priority is tax policy.
Industry professionals are discussing the implications of a variety of scenarios.
Jenna Stauffer, broker associate at Ocean Sotheby’s International Realty in Key West, Florida, said that privatizing Fannie Mae and Freddie Mac would be “a very lengthy and complex process with a lot of hurdles along the way.”
Stauffer added that “there’s a valid concern that freeing these companies from federal concern could result in higher mortgage rates which is the last thing we need during an affordability crisis. Higher rates would worsen the crisis, making homeownership even more difficult for many Americans.”
Privatization, Stauffer continued, could pose risks to the secondary mortgage market, adding further uncertainty.
On the flip side, privatization could strengthen the system by reducing government exposure and promoting sustainable lending practices, she noted.
“I think a more gradual approach that focuses on market stability and consumer protection could likely lead to the best outcomes,” Stauffer said.