Two influential mortgage investors could leave their government conservatorship behind if President Trump’s administration follows through on past actions from his first term, and an industry group is offering help to make sure nothing valuable gets lost in the transition if they do.
The Mortgage Bankers Association is offering to help parties in Washington do what must be done to preserve certain features added in conservatorship, particularly an explicit guarantee, President and CEO Bob Broeksmit said Tuesday in pledging MBA assistance with the change.
“You really have to have Congress and Capitol Hill involved, particularly as it relates to the nature of a government backstop,” Bill Killmer, senior vice president of legislative affairs, said in an interview with this publication.
Prior to going into conservatorship in September 2008 due to the Great Financial Crisis, the GSEs had an implied guarantee, and there’s fear that reverting back could weaken their large mortgage securitization market, which is a key funding vehicle for U.S. housing.
A transition that disrupts the market’s perception of Fannie and Freddie’s guarantee is generally considered one of the biggest risks of an exit from conservatorship, and that is one reason why it’s not certain that the Trump administration will follow through on the idea.
Other features the MBA wants to preserve include pricing parity for lenders regardless of size, the uniform mortgage-backed security designed to make each enterprise’s MBS fungible, new product transparency, and reform involving loan representations and warranties.
Mark Calabria, the former director of the Federal Housing Finance Agency during Trump’s first term, did voice interest in supporting some of these items, like the parity of guarantee fees that shape the influential mortgage investors’ lender pricing.
Other items, like a UMBS fee proposed under the 2020 enterprise capital framework to reflect the responsibility each of the two entities has to step in for each other, led to some tension with groups like Broeksmit’s, the Securities Industry and Financial Markets Association and others.
Sandra Thompson, who became FHFA’s director during the Biden administration, initially allowed the fee to move ahead with monitoring even though trade groups showed some concern about it undermining the concept of fungibility. Thompson later downsized the fee.
That helped somewhat, but even the small fee indicative of differences between the two enterprises has persisted in discouraging some types of UMBS activity
Meanwhile, other indicators suggest the two enterprises’ presence in the new-issue securities market is increasingly similar.
The 2025 deemed issuance ratio just announced, which reflects accounting and tax comparisons of new TBA securities Fannie and Freddie respectively guaranteed from Nov. 1 2022 to Oct. 31, 2023, is 51%/49%. It was previously 53%/47%.
The next FHFA leader could reconsider the fee given fungibility concerns. While it would have to be put in perspective given priorities like preserving the guarantee in an exit, and building capital regardless of whether that occurs, the fee could be relatively easy to address.
“Building capital is an issue and a potential exit from conservatorship is an issue. I think it really comes down to who is in that seat,” said Walt Schmidt, senior vice president of mortgage strategies at FHN Financial.
Another factor is how much the next leader might want to change the enterprises’ structures in an exit, and whether that changes in the equation in regard to UMBS. However, one analyst recently told attendees at a Housing Finance Strategies event on election issues that drastic changes are unlikely.
“Broad reform isn’t going to happen,” said Jaret Seiberg, financial services and housing policy analyst for TD Cowen Washington Research Group. “It’s simply a question, do they stay in conservatorship, or is there a recap and release that allows them to exit?”
While the groundwork laid for a conservatorship exit in Trump’s first term gives such an effort a leg up in some respects, the slower momentum under the Biden administration and current term limits suggest an FHFA run under his auspices could argue for simplicity.
(Trump has signaled he might try to extend his term but current U.S. constitutional rules don’t allow it, according to reports from CBS and other news sources.)
“There’s less of a runway this time because he only has four years,” Schmidt said.
-Spencer Lee contributed to this report
