If Donald Trump wins a second term in the White House, he’s going to attempt to return Fannie Mae and Freddie Mac to private status after more than 16 years under federal conservatorship. That’s according to Mark Calabria, the former head of the Federal Housing Finance Agency (FHFA) under Trump.
As for the mechanics of removing the government-sponsored enterprises (GSEs) from conservatorship, Calabria said it would take several years to pull off. He noted there are detailed plans in place from when he was last in charge of the FHFA and Steven Mnuchin was the secretary of the U.S. Department of the Treasury.
“A new Treasury secretary is also probably going to have to go through six to nine months of doing the rounds, and talking to people and hearing the enthusiasm, before they figure out that Congress isn’t going to do anything,” Calabria said in remarks given Monday at a Community Home Lenders of America (CHLA) event in Washington, D.C.
“And so, if you start from the premise of ‘Congress is unlikely to do anything,’ then what do you have to do? There’s nothing about the conservatorship that changes the implied guarantee. Despite what maybe some people in capital markets may believe, there’s no guarantee in conservatorship; there’s no guarantee out of conservatorship.”
The chances of the agencies going private in 2025 is “zero,” Calabria said. “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.”
Last week, The Wall Street Journal reported that several Trump allies have been working since the spring on a plan to remove the GSEs from conservatorship.
One element of the proposed plans include “having the Treasury Department partially back a certain amount of Fannie and Freddie loans through a so-called standby guarantee,” according to WSJ sources. “[This is] similar to the way the Federal Deposit Insurance Corp. (FDIC) backs deposits below a certain threshold at banks.”
Regarding paths to privatization, one discussed method is to reportedly bypass both houses of Congress and instead commence the process through the FHFA. The agency would be “key to any plan,” the report said, since it establishes the GSEs’ capital requirements. Any additionally derived value from the GSEs could be divided between the government and GSE shareholders, which could avoid drawn-out and costly legal proceedings.
Interestingly, former White House housing official Jim Parrott, who joined Calabria for the CHLA roundtable discussion, said a Kamala Harris-led administration could also remove the GSEs from conservatorship.
Under that scenario, “they will try to find ways to bake what we have in conservatorship that they like in in a way that is durable outside of conservatorship,” Parrott said. “And they think about the GSEs as some mission-focused utility, agnostic as to ownership — tribal, legal, government, corporation, whatever. But they will move in that direction.”