July 18, 2019
Posted in: Alerts
By: Gerson

Recent reporting by Bloomberg suggested that the Trump administration may be wavering on pursuing widespread reforms of Fannie Mae and Freddie Mac in advance of the 2020 election due to the potential economic impact of those reforms on voters.

That report was based on anonymous sourcing, and the White House denied that any such movement was afoot, but the administration member who will have the most impact on any GSE reform just threw more cold water on the idea of ending the conservatorship of Fannie and Freddie anytime soon.

In fact, Federal Housing Finance Agency Director Mark Calabria now says it’s possible that the GSEs may remain in conservatorship until 2024, at least.

Calabria sat down this week with Reuters and in that interview, the FHFA director said that it is his “hope” to have the GSEs out of conservatorship by the end of his five-year term in 2024.

But, according to the report, Calabria doesn’t view the end of his term as a “hard deadline” for the end of conservatorship.
From Reuters:

“That’s my time horizon,” he said, referring to the end of his term. “I’m under no expectation to try to get all this done. … So if in four years, nine months they’re not out of conservatorship, I’m not pushing them out.”

Fannie and Freddie have been in conservatorship for more than 10 years, but the Trump administration has been vocal about wanting that status quo to end.

Last year, the Trump administration called for ending the conservatorship of Fannie and Freddie as part of a plan that would overhaul the federal government.

In a section of the 132-page document entitled “Reform Federal Role in Mortgage Finance,” the Trump administration proposes ending the conservatorship of Fannie and Freddie and privatizing the GSEs.

Also last year, Craig Phillips, then-Department of the Treasury Secretary Steven Mnuchin’s top housing advisor, told the crowd at the Mortgage Bankers Association 2018 Annual Conference in Washington, D.C., that the Trump administration is working to end the conservatorship of Fannie and Freddie.

But Phillips, seemingly the administration’s point person on Fannie and Freddie reform, left his position earlier this year without any substantive reforms at the GSEs taking place.

Despite that, President Donald Trump earlier this year officially called for the administration to come up with a plan to end the long-standing conservatorship of Fannie and Freddie, and recent reports suggested that plan may soon be released.

At the MBA Secondary Conference in Manhattan in May, Calabria said ending the net worth sweep is the first step toward privatization, and then setting up an IPO for the GSEs to raise capital may follow.

Later, Calabria told Reuters that Fannie and Freddie may not be privatized in unison, as the government might choose to release one and then the other. “It may be preferable to stagger that process due to the complexities involved in getting the government-backed firms,” he said.

As for the administration’s plan for GSE reform, Calabria told Reuters this week that the plan may not be released until September, due to the other issues the administration is currently dealing with, which echoes Bloomberg’s reporting on the matter.
Again from Reuters:

The Trump administration has said it is eager to push ahead with housing finance reform and industry analysts and insiders had expected a Treasury-led proposal for removing them from conservatorship to be published by this month. Calabria said the report was “essentially done,” that he had seen a draft, and expected it to be published in August or September.

Treasury Secretary Steven Mnuchin, who has led the push for reforming Fannie and Freddie within the administration, is “juggling a number of balls,” Calabria said. Mnuchin is involved in the ongoing trade war with China, debt ceiling negotiations with Congress and imposing sanctions on Iran.

Calabria, in the interview, also hinted at one of the potential reforms to the GSEs’ operations. According to the Reuters report, the Treasury report will call for continued government backing of the GSEs, but not in the current form. Calabria told Reuters that he plans to call for a government guarantee of the mortgage-backed securities issued by Fannie and Freddie, instead of the companies themselves.