2 weeks ago
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In the newest episode of the HousingWire Daily podcast, Editor in Chief Sarah Wheeler sits down with author and investment banker Chris Whalen to explore the potential pitfalls of ending the federal conservatorships of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
This interview has been edited for length and clarity. To start the conversation, Wheeler and Whalen immediately dive into the possibility of the Trump administration bringing the GSEs out of conservatorship.
Whalen: Yes, it can happen. My assumption in our writing has been that there won’t be any legislation, because that’s way too difficult. And honestly, they don’t have time. If you’re going to take the GSEs out of conservatorship, it’s going to take you a few years to get ready.
You have to turn these things back into something close to a private company. Banks and nonbanks have changed dramatically over the last 15 or 16 years. You need somebody at the Federal Housing Finance Agency (FHFA) who understands finance and takes this on as their top priority. The Treasury is going to have to still guarantee the bonds. We can’t afford to play with the idea of taking them out of conservatorship and not keeping those bonds wrapped by the United States.
Wheeler: What timeline are we looking at, assuming we’re not doing the legislative solution?
Whalen: We’ve got to get started immediately — as soon as President Trump picks a new FHFA director.
Wheeler: If you’re working at an IMB as a mortgage loan officer or a real estate person, why do you care about this?
Whalen: Well, the cost of conventional mortgages is going to go up. Also, the people selling loans to Fannie and Freddie today may become their competitors. Competitively, it’s going to be a very interesting situation.
Wheeler: A Trump administration could mean less regulation. What does that look like in terms of instability in the market?
Whalen: Because of the time constraint, the Mortgage Bankers Association (MBA), the American Bankers Association (ABA) and all of the trade groups must make a quick decision. Do we oppose release without legislation? That’s going to take more than four years, and the entire industry will unite to oppose releasing the GSEs if Trump tries to do it this way.
I’ve told my readers there’s a one-in-five chance that you’re going to see a release with current law and no legislation.
Wheeler: When you’re looking at one-in-five odds as a business owner, how do you make plans?
Whalen: You must pay attention to conventional loan pricing. Also, what is the rating for Fannie and Freddie going to be when they’re released? Money on Wall Street moves for ratings. Spreads will also widen. Overall, it will be fun to watch this.
To close the conversation, Whalen speaks on the potential safety and security of the entire mortgage market if the GSEs leave conservatorship.
Whalen: There are a lot of remaining issues from the 2020 to 2021 period that haven’t been resolved, and I think we ought to be careful. But unfortunately, politics is not careful and I suspect that the Trump people are going to try and do this.
English (US) ·