Trump’s Plans for Fannie Mae and Freddie Mac: A Push Towards Privatization
The Trump administration is poised to advance its plans regarding the privatization of Fannie Mae and Freddie Mac, initiatives that were initially set in motion during his first term. Recent actions from the administration, particularly agreements made earlier this year between the Treasury Department and the Federal Housing Finance Agency (FHFA), underscore this direction. The agreements aim to amend the Preferred Stock Purchase Agreements (PSPAs) governing the two government-sponsored enterprises (GSEs), which collectively owe approximately $330 billion in senior preferred stock to the Treasury.
In an official statement, the Treasury highlighted that the revised agreement is intended to facilitate a methodical transition for the GSEs out of conservatorship, emphasizing the importance of maintaining established practices throughout this process.
The Importance of a Structured Departure
The idea of a structured exit has been a prevalent theme among discussions surrounding the future of Fannie Mae and Freddie Mac. During his confirmation hearing in February, Pulte demonstrated this perspective: “While their conservatorship should not be indefinite, any exit from conservatorship must be carefully planned to ensure the safety and soundness of the housing market without upward pressure on mortgage rates,” he stated.
The Mortgage Bankers Association (MBA) has consistently advocated for a secure and sound exit strategy. At the MBA’s Independent Mortgage Bankers conference in January, CEO Bob Broeksmit articulated four fundamental principles that should guide the eventual release of Fannie Mae and Freddie Mac:
- An Explicit Backstop: Establishing a formal safety net is crucial. “Without it, global investors’ confidence in buying, holding, and selling GSE mortgage-backed securities could be jeopardized, which would greatly impact liquidity in the market and drive rates up further,” Broeksmit explained.
- A Level Playing Field: The FHFA must ensure uniform pricing and underwriting standards that do not vary based on the lender’s size, business model, or charter.
- Clear Distinction of Market Functions: The separation between primary and secondary market roles must be distinctly defined and rigorously enforced by the FHFA.
- Enhanced Regulatory Authority: The FHFA should be empowered with the necessary tools and responsibilities to regulate the GSEs’ return rates and market behaviors, often viewed as utility-style authority.
A Tax Reform Hurdle
Amidst the preparations for an exit, one significant challenge remains: the need for tax legislation that would make the 20% deduction for qualified income from pass-through businesses a permanent fixture. This provision, part of the 2017 Tax Cuts and Jobs Act (TCJA), is set to expire at the end of the current year unless Congress intervenes. For Treasury Secretary Scott Bessent, addressing tax policy is of paramount importance.
Bessent remarked in a Bloomberg interview, “Right now the priority is tax policy. Once we get through that, then we will think about that. The priority for a Fannie and Freddie release — the most important metric I am looking at is any study or hint that mortgage rates would go up. So anything that is done around a safe and sound release is going to hinge on the effect on long-term mortgage rates.”
As Congress continues to negotiate the specifics of the tax bill, there remains no clear timeline for its approval, leaving Fannie Mae and Freddie Mac’s future in a state of uncertainty.
For further reading on the impact of Trump’s policies on housing, see our updated list of actions.
