Speculation about the future of GSE conservatorship in a Trump administration took another turn on Thursday when the Treasury announced an agreement to amend its Preferred Stock Purchase Agreements (PSPAs) with Fannie Mae and Freddie Mac. In a press release, Treasury said the amended agreement would “help ensure that the eventual release of the GSEs from conservatorship will be orderly and to reflect certain existing practices.”
The agreement restores Treasury’s previous right to consent to a release of the GSEs from conservatorship. In addition, “under a separate side letter from FHFA to Treasury, FHFA will solicit public input, before releasing a GSE from conservatorship, regarding the potential impacts on the housing market and the GSEs.”
Bob Broeksmit, president and CEO of the Mortgage Bankers Association, released a statement supporting the efforts behind the changes to the PSPAs, while stressing the need to consider the implications on the housing sector.
“MBA believes strongly that any efforts to remove Fannie Mae and Freddie Mac (the GSEs) from their federal government conservatorships must fully consider the impact on single-family and multifamily housing markets and overall financial stability. This includes the critical move that Congress establishes an explicit federal backstop for mortgage-backed securities,” Broeksmit said in the statement.
“Conservatorship was never intended to be perpetual, and we support efforts toward the GSEs’ release. We appreciate the rationale behind today’s changes to the PSPAs, which are designed to foster transparency across government agencies, share market impact analysis, and give appropriate time for market participants to provide feedback on proposed reforms.
“The GSEs are integral to homeownership and rental housing, and the transition to a post-conservatorship era must be done the right way with an ample timeline. MBA stands ready to work with the incoming Trump administration at the White House, Treasury Department, and FHFA — and also with the Congress — to ensure that happens,” Broeksmit said.
The announcement gave more detail on key parts of the changes:
- Restoration of Consent Rights: As amended, the PSPAs restore Treasury’s right to consent to a release of the GSEs from conservatorship, consistent with the terms of the PSPAs from 2008 to 2021 and provide Treasury with a right to consent to any discretionary action by the FHFA to commence a receivership of the GSEs.
- Commitment to Conduct a Market Impact Assessment: As reflected in the side letter from FHFA to Treasury, prior to releasing the GSEs from conservatorship (except through receivership), FHFA will issue a public request for information outlining in detail one or more specific options for the termination of conservatorship and seek input on potential impacts of each option on the housing market and on the GSEs. This process will increase transparency to the public and key stakeholders and will help inform FHFA’s and Treasury’s decision making. FHFA will brief the Financial Stability Oversight Council on the public input, including regarding factors that could have potential impacts on U.S. financial stability. FHFA will then provide Treasury with a recommended approach to the termination of the conservatorship, reflecting the public input and assessing potential impacts on the housing market and the GSEs. Treasury will consult with the President prior to consenting to a release of the GSEs from conservatorship.
- Technical Updates: The letter agreement updates several provisions of the PSPAs to make corrections or reflect existing practices, including making technical updates to the definitions of “Indebtedness” and “Mortgage Assets”; eliminating certain business-activity restrictions from the PSPAs that have been suspended since September 14, 2021; updating references to the Enterprise Regulatory Capital Framework to refer to that framework as amended from time to time; and updating notice provisions to allow for electronic communications between the parties.
Treasury clarified that the agreements “do not affect the GSEs’ capital retention or the dividend payments under the senior preferred shares that the GSEs issued to Treasury.”
In addition, the statement says that “parties are not at this time amending the expiration date of the warrants for each GSE’s common stock held by Treasury. However, Treasury expects that the parties will agree in the future to extend the September 7, 2028, expiration date to the extent appropriate in order to avoid any possibility of a disorderly or disruptive exit from conservatorship.”
In 2019, the first Trump administration took some initial steps to remove the GSEs from conservatorship, notably allowing Fannie and Freddie to start retaining capital, but were unable to gain much traction in one term. Now they have a second bite at the apple, and Trump’s former FHFA director, Mark Calabria, has said they would be more prepared this time.
At a Community Home Lenders of America event in September, Calabria said the chances of the agencies going private in 2025 is “zero,” But, “by [2027] I would say there’s maybe 70% chance. … Almost every decision you think you have to make, we scoped out. All those millions of dollars with my go ahead, low-key actually produced documents. So, there are plans; there are options. You can get them out. It’s all feasible, doable.”
On the HousingWire Daily podcast in December, author and investment banker Chris Whalen weighed in on the possibility of ending conservatorship, saying he gave it a one in five chance due to the difficulty. “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 the Trump administration is serious about the exit, Whalen said they would have to get started “immediately — as soon as President Trump picks a new FHFA director.”
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