Will Fannie Mae and Freddie Mac be free by 2026?
The US Treasury Department and the Federal Housing Finance Agency have jointly issued new guidelines on releasing Fannie Mae and Freddie Mac from government supervision, restoring Treasury's authority to approve any release plan.
The move pushed the mortgage giants' common stock to its highest level since 2019.
The roadmap, published less than three weeks before Donald Trump's scheduled return to office, details Treasury's commitment to developing detailed plans for ending the conservatorship, including public comment periods and consultation with the Financial Stability Oversight Council and the US president.
"The agreement restores Treasury's previous right to consent to a release of the GSEs from conservatorship," stated the Treasury Department and FHFA in their announcement. "It will help ensure that the eventual release of the GSEs from conservatorship will be orderly and to reflect certain existing practices."
During the 2008 financial crisis, the federal government took over Fannie Mae and Freddie Mac. The bailout funds amount to around $187.5 billion.
In return, the Treasury acquired senior preferred shares in both of these entities. The new deal retains the current capital retention and dividend payment terms by GSEs on these senior preferred shares.
The market response was significant, with Freddie Mac shares going up to $3.96 and Fannie Mae's stock reaching about $4.07 in morning trading on Friday. Hedge fund manager Bill Ackman's recent recommendation to buy the entities' common stock has further influenced market sentiment.
An official for the Biden administration, speaking on condition of anonymity, said this new agreement doesn't prevent administrative action in the future regarding Fannie and Freddie but sets out clear expectations on the process from market participants to Congress about when conservatorship will end.
These two giants, although not direct mortgage lenders, are integral parts of the US housing market. They purchase loans and bundle them into securities sold to investors. Bloomberg Intelligence analyst Ben Elliott indicates that a full exit from government-owned or guaranteed MBS is at best a 2026-27 prospect, thereby indicating that an exit process would be lengthy.
Is the roadmap too optimistic, or right on schedule? Share us your thoughts in the comments below.
