Boban John
Trump wants to finish what he started in his first term
It is widely expected that the Trump administration will finish what they started in his first term and privatize Fannie and Freddie. Although likely a years-long process, the administration started laying the groundwork at the start of the year, when the Treasury Department and FHFA announced an agreement to amend the Preferred Stock Purchase Agreements (PSPAs) with Fannie and Freddie, which owe $330 billion in senior preferred stock to Treasury.
In a news release at the time, Treasury said that the amended agreement would “help ensure that the eventual release of the GSEs from conservatorship will be orderly and to reflect certain existing practices.”
An orderly exit
The orderliness of the exit process is a theme for anyone talking about the exit, including Pulte in his confirmation hearing in February.
“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 said.
The Mortgage Bankers Association has made a safe and sound exit the cornerstone of their advocacy since the election. During the MBA’s IMB conference in January, MBA CEO Bob Broeksmit identified four overarching principles the trade group believes should frame the release of Fannie and Freddie:
- An explicit backstop. “Without it, global investors’ confidence buying, holding and selling GSE mortgage-backed securities could be jeopardized, which would greatly impact liquidity in the market and drive rates up even higher than they are today,” Broeksmit said.
- A level playing field. FHFA must ensure “that pricing and underwriting does not vary for a lender based on size, business model or charter.”
- The bright line between primary and secondary market functions. This must be “clearly defined and rigorously enforced by FHFA.”
- Regulatory enhancements at FHFA. FHFA should be granted “the necessary powers and responsibilities to regulate the GSE rate of return and market conduct, often viewed as utility style authorities.
The biggest obstacle? A tax bill
Even with all the other parts in place for an exit, one big obstacle remains: getting a tax bill in place to make the 20% deduction of qualified income for pass-through businesses permanent. That’s a provision of the 2017 Tax Cuts and Jobs Act (TCJA) that is scheduled to expire at the end of this year without congressional action, and it’s the real first priority for Treasury Secretary Scott Bessent.
“Right now the priority is tax policy,” he said in an interview with Bloomberg after his confirmation. “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.”
The details of the tax bill are still being hashed out in Congress and there isn’t a clear timeframe for its passage.
Read more: Updated list of all Trump’s actions that impact housing
