The Trump administration's plan to transition Fannie and Freddie from government control has run into a huge roadblock
The Trump administration’s plan to free Fannie Mae and Freddie Mac from government conservatorship may be stymied by the economic impacts of the coronavirus outbreak.
The GSEs, which backstop about $5 trillion worth of mortgages, may have to reserve vast sums to cover the risk of loans failing as a result of the outbreak, according to a Bloomberg report. They may also be affected by the hit taken by mortgage servicers whose borrowers are in forbearance.
“This crisis is dashing hopes for a quick exit from conservatorship,” Jaret Seiberg, an analyst at Cowen & Co., told Bloomberg. “If there’s not a lot of clarity on their losses or capital it’s hard to envision the market providing the $100 billion of fresh capital they would need to raise down the road.”
Investors seem to be worried about how the GSEs will weather the COVID-19 crisis; shares of Fannie and Freddie have plummeted more than 30% since the end of February, Bloomberg reported.
The GSEs were put into government conservatorship during the last financial crisis, when the government bailed them out as they teetered on the brink of insolvency. Under the plan, the GSEs’ profits were sent to the Treasury. In recent years, lawmakers and industry groups have called for the GSEs to be removed from conservatorship.
