Ending government control of the mortgage giants Fannie Mae and Freddie Mac has long been a goal of President Donald Trump, dating back to his first term.
He has teased an IPO for them as recently as last month.
But CNN reported that the president’s decision to give housing chief Bill Pulte the added role of Director of National Intelligence has led some observers to doubt that the effort will succeed. After all, Pulte is the official in charge of making the IPO happen.
The plan to “spin off” or privatize Fannie Mae and Freddie Mac refers to ending the federal conservatorship that has been in place on them since the 2008 financial crisis and returning the GSEs to private ownership.
Even with his new responsibility, Pulte, whose grandfather founded one of the nation’s biggest homebuilders, would retain his position as director of the Federal Housing Finance Agency, which oversees Fannie and Freddie, even as the DNI job would put him in charge of national intelligence agencies such as the CIA and the NSA.
Expanded Portfolio
Pulte’s expanded portfolio may suggest the administration is in no rush to make any moves, CNN said. When the network sought an updated timeline this week from the White House, the FHFA, Fannie Mae, and Freddie Mac, none responded.
“I did see steps moving forward (to spin off Fannie and Freddie), but it appears to me that those efforts have stalled,” Susan Wachter, a professor of real estate and finance at the Wharton School of the University of Pennsylvania, told CNN after Pulte’s new role was announced.
CNN noted that If handled poorly, experts have warned that an exit from conservatorship could disrupt the market for mortgage-backed securities (MBS) that underpins the U.S. housing finance system. A disruption could push borrowing costs even higher for homebuyers at a time when home prices are near record highs and mortgage rates are elevated amid heightened Iran war-fueled inflation concerns.
“I think it’s a 24/7 operation to bring it private,” Wachter said.
Wachter is not alone in believing Pulte’s new responsibilities may sideline the push to spin off.
“It already was going to be operationally and politically difficult to end the conservatorships. We do not see how one could surmount those obstacles if the FHFA director is devoting most of his time to national security issues,” TD Cowen financial services and housing policy analyst Jaret Seiberg wrote in a note to clients this week after Pulte’s new role was announced, CNN reported.
‘Phenomenal Job’
On Thursday, Trump lauded Pulte, saying he “has done a phenomenal job at Fannie Mae-Freddie Mac,” and said his role at DNI is “not a permanent position.”
Fannie Mae and Freddie Mac don’t directly issue mortgages to buyers, but they buy up mortgages from lenders and repackage them for investors. That enables a reliable flow of money to mortgage lenders and allows them to offer more affordable borrowing rates to would-be homebuyers.
Fannie and Freddie were brought under government control during the housing meltdown of 2008 to prevent further damage to the housing market. That arrangement was meant to be temporary.
“I doubt very much that anyone contemplated that 18 years later, they would still be in conservatorship,” Watcher said.
Companies are Viable
Backers of ending the conservatorship, including many of Trump’s Republican allies, contend that the companies are viable on their own and that an IPO could help raise billions of dollars for a government flooded with debt.
CNN reported last year that the president had met with various Wall Street bank CEOs, including JPMorgan’s Jamie Dimon, Goldman Sachs’ David Solomon, and Bank of America’s Brian Moynihan, to discuss a potential IPO of the two mortgage giants.
But Wachter and other experts warned that without an explicit government bailout guarantee during a future crisis, MBS investors would demand higher returns to compensate for the added risk. Those higher costs would likely be passed on to borrowers as higher mortgage rates.
Trump said last month that the U.S. government will retain its mortgage guarantees and oversight role for Fannie Mae and Freddie Mac, Reuters reported.
“I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President,” Trump said in a post on Truth Social.
