The president-elect's incoming administration wants to end government stewardship of the GSEs. How likely is that prospect?
Photo: Gage Skidmore, CC BY-SA 3.0, via Wikimedia Commons
From the threat of wide-ranging tariffs to mass deportations and sweeping tax cuts, there’s been no shortage of policy proposals from the incoming Trump administration to chew over since the president-elect’s big victory at the polls last month.
But one long-held Republican goal with potentially huge implications for the mortgage and housing markets has reared its head once again in the wake of Donald Trump’s election win: taking Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs), out of conservatorship and leaving a majority of shares in the ownership of private investors.
That would be no small feat: those mortgage giants are worth more than $145 billion combined (Q3 2024) and guarantee about 70% of the US’s mortgages.
The move could mark a significant shift for mortgage lenders, according to Mortgage Bankers Association (MBA) senior vice president and chief economist Mike Fratantoni, who told Mortgage Professional America it could sometimes be “frustrating” from a lender perspective when a regulator and conservator exerts an influential role in those enterprises.
“When you’re dealing with another business, sometimes there can be a sort of market sensitivity and responsiveness that’s [often] just not there with a government organization, which necessarily acts at a more methodical pace,” he said.
“I think from a lender’s point of view, that’s the benefit of moving them out of conservatorship: Fannie Mae and Freddie Mac would start acting more like private companies, the way they did before 2008.”
How long would it take to move Fannie and Freddie out of government conservatorship?
The two institutions never stopped being private companies, operating under a specific congressional charter, but the US government became their primary owner in the aftermath of the mortgage market meltdown.
Moving them out of conservatorship could prove a mammoth process that’s unlikely to be resolved quickly – and would likely take “several years” to complete, according to Fratantoni.
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“Private investors would have at least the majority if not all the shares of those companies. That’s going to be a long process,” he said. “The US Treasury has invested hundreds of billions of dollars in these companies and to exit from those positions is going to take some time if they want to do it in a way that doesn’t disrupt the smooth functioning of the market.”
Whether or not the change will be implemented remains to be seen. Trump has outlined an ambitious policy slate ahead of his January 20 inauguration, with plans for new tariffs on Canada and Mexico and a wave of deportations of undocumented immigrants grabbing most headlines.
Is an end to the GSEs’ conservatorship a realistic proposition?
Efforts to nudge the GSEs away from conservatorship came to naught during Trump’s first administration, although fresh attempts were reportedly already well underway even prior to November’s election.
The prospect has moved from “very unlikely” prior to the election to a distinct possibility in its aftermath, according to Fratantoni – although it’s unclear where the move will land on Trump’s list of priorities. “We expect it’s going to be higher on the list of items that the Trump administration is focused on – but it’s not the top,” he said.
“At the top are immigration, trade, taxes, reforming government. I think all of those likely fall above this issue. The challenge – and we’ve been through this exercise a couple of times over the past 16 years – is that it’s really complicated, and it’s a couple of hundred billion dollars in terms of the equity stakes in these enterprises.”
Stakes are simply too high to risk approaching the issue with an ill-thought-out plan, Fratantoni said, with plenty that could go wrong in that case.
“It’s a six-trillion-dollar-plus market, so you don’t want to mess this up,” he said. “You want to do it very cautiously and methodically. And the downside of getting it wrong is really extraordinarily risky.
“There’s an upside of getting it right – there are some benefits – but I think it would take the full attention of the Treasury Secretary, of folks in the White House to get this done and so it’s going to depend on what happens with those other priorities and whether they have enough time and energy to focus on this really complex endeavor.”
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