Timeline for Ending GSE Conservatorship Still Uncertain

Written By: Joel Palmer, Op-Ed Writer

What was once a top priority for the Donald Trump administration when he took office may not happen until the end of the President’s potential second term.

Last week, Federal Housing Finance Agency Director (FHFA) Mark Calabria told Reuters that it was his “hope” that Fannie Mae and Freddie Mac would be out of conservatorship by 2024. That is the year Calabria’s term as FHFA director ends.

“That’s my time horizon,” Calabria was quoted in the Reuters article. “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.”

Reuters also reported that a plan for ending the conservatorship relationship may not be published until September.

Multiple reports earlier this year indicated the plan would be available in June or this month. Calabria told Reuters that the report is “essentially done” and was being reviewed. The delay, he told Reuters, is due to the Treasury Department’s other priorities.

According to Reuters, Calabria expected the Treasury will support some form of government guarantee for Fannie and Freddie. But he wants that guarantee limited to the mortgage-backed securities issued by the GSEs.

The Trump Administration has strongly indicated a desire to end government controls of the GSEs since the President took office. Treasury Secretary Steven Mnuchin said after being nominated in 2017 that ending the conservatorship arrangement was a top 10 priority and that his department would end government control of Fannie Mae and Freddie Mac once officials can ensure “that when they are restructured, they are absolutely safe and don’t get taken over again.”

In March, President Trump released a memorandum that directed the Treasury Secretary to develop a plan for administrative and legislative reforms to achieve a number of housing reform goals, including ending the GSE conservatorship. In the memo, he wrote, “it is time for the United States to reform its housing finance system…”

However, Bloomberg recently reported that the administration likely won’t take action before the 2020 election, “in part because of the political risk of potentially upending the U.S. mortgage market.” The report cited the complicated nature of the process as also contributing to why it’s no longer as strong a priority.

Calabria, who took over the FHFA in April, has from the beginning of his tenure said there is no set deadline for relinquishing Fannie and Freddie from conservatorship. He told attendees of the Mortgage Bankers Association’s annual National Secondary Market conference earlier this year that the process “will be driven, first and foremost, by their ability to raise capital.”

A plan to do that has been an obstacle to moving forward. Increasing capital levels has been challenging for Fannie and Freddie since they entered conservatorship because their profits have been sent to the U.S. Treasury since 2012. It’s estimated the GSEs would have to raise more than $200 billion in capital to be financially stable enough to be released by the Treasury.

When the 2008 financial crisis hit, the combination of plummeting home prices and rising mortgage defaults put at risk mortgage-backed securities backed by Fannie and Freddie. This required a $188 billion bailout from the federal government, which took over ownership in September of that year.

About the Author

As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.