Uncle Sam will retain conservatorship over Fannie Mae and Freddie Mac for the foreseeable future, a former CEO for one of the mortgage giants predicts, despite President Trump's push to free the agencies.
Trump wants to end federal conservatorship of Fannie Mae and Freddie Mac, a goal he campaigned on that dates to his first administration. Trump said the privatization of both organizations will create more competition among mortgage lenders and benefit buyers. Don Layton, former CEO of Freddie Mac and a visiting fellow at New York University’s Furman Center for Real Estate and Urban Policy, said the end of federal governance is far from sight: Several years are needed to free them responsibly with little risk and disruption to the housing market.
Layton led Freddie Mac for seven years, up until 2019. He spoke virtually on April 17 with Chris Herbert, managing director of the Harvard Joint Center for Housing Studies.
The second Trump administration, Layton said, “can take some good steps to move the ball down the court a bunch, and that’s as far as they’ll get during the next four years.”
Both housing agencies buy mortgages from banks and sell them to investors as securities. Banks use these funds to approve more mortgages. Amid the housing market crash in 2008, experts and politicians feared for the organizations’ financial stability.
The Federal Housing Finance Agency, led by Bill Pulte, has overseen both organizations since the Great Recession. So far, Pulte has made cuts and changes at both organizations, including requiring staff to return to the office. The Biden administration turned its attention away from freeing Fannie and Freddie because the market was stable, Layton said, but the conservatorships were meant to be short-lived by design and by law.
“By and large, most people go, ‘If it ain’t broke, don’t fix it,’” Layton said. “That runs into the legal notion of conservatorship. It’s not meant to be a government expropriation of the company. By legislation, they are supposed to be returned to their stockholder control. It’s sort of a good government to adhere to the spirit of the conservatorship laws.”
Layton said mortgage rates will increase minimally when the government frees the agencies, but they could be easily influenced by inflation, Federal Reserve policies, and the ease of the release process.
“These are small amounts,” Layton said. “Most people are not going to make big changes or decisions ... whether the mortgage rate is 6.7% or 6.8%.”