• Jake Heronema

Trump Administration May Privatize Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac have been kept in conservatorship limbo for over a decade now. But the Trump administration may move to end that before leaving office in January.

In the wake of the government bailouts of Fannie Mae and Freddie Mac, the housing-finance giants were placed into conservatorship. The Federal Housing Finance Agency, a new regulator, was created to oversee the two companies’ operations as the companies recovered from the subprime-mortgage crisis and repaid the federal government.

In that time, Fannie and Freddie’s shareholders — other than the federal government — have gone without even a single dividend payment. For most of this time, Fannie and Freddie’s profits have been swept to the Treasury Department.

Conservatorship was not intended to be a permanent thing. In April 2019, Vice President Mike Pence’s former chief economist, Mark Calabria, was confirmed as the director of the Federal Housing Finance Agency, the main regulator overseeing Fannie Mae and Freddie Mac. Since assuming that post, Calabria has moved to lay the groundwork needed to get the two companies out of conservatorship. But with President Trump’s loss in the elections earlier this month, a wrench was thrown in those plans. Former Vice President Joe Biden is unlikely to be in any hurry to move Fannie Mae and Freddie Mac out of their current arrangement.

Faced with that reality, Calabria appears to be considering a plan to move Fannie and Freddie out of conservatorship before the inauguration, according to a report from The Wall Street Journal. Depending on how the exit is orchestrated, it could have a major impact on the housing finance ecosystem. Fannie Mae and Freddie Mac are not mortgage lenders — they buy and securitize mortgage loans, providing a crucial inflow of capital. All told, nearly half of all mortgages created in the first quarter of 2020 (47%) were backed by Fannie and Freddie, according to data from Inside Mortgage Finance and the Urban Institute.