FHFA, Treasury amend GSE conservatorship agreements

The Federal Housing Finance Agency and Treasury on Thursday made changes to the pacts the U.S. government has with two major government-sponsored enterprises that add certain steps ahead of a release.

The amendments, which follow statements from billionaire and GSE investor Bill Ackman indicating he's confident of plans for a near-term exit, also aim to preserve Fannie Mae and Freddie Mac's ability to support housing initiatives. Ackman is an ally of President-elect Trump.

"Today's announcement will reassure stakeholders that the Enterprises' eventual release from conservatorship will follow a methodical process intended to minimize disruption to the housing and financial markets,"  said FHFA Director Sandra Thompson.

A key concern in any plan to remove Fannie and Freddie from conservatorship would be whether it destabilizes U.S. home mortgage markets, where they have played a sizable role since the Great Financial Crisis' troubled housing market forced them into conservatorship.

The GSEs would have to meet capital requirements that its regulator and conservator sets and must obtain written Treasury Department consent for release according to the changes to the Preferred Stock Purchase Agreements.

FHFA and Treasury also established a process for "terminations other than receivership" that would require public input, looping in the Financial Stability Oversight Council, and an analysis of exit strategies' market impact.

Previous FHFA Director Mark Calabria and Treasury Secretary Steve Mnuchin had introduced earlier amendments to the PSPAs intended to set Fannie and Freddie on a course for an exit from conservatorship, some of which Thompson has amended over time.

Calabria has said that completing an exit from conservatorship would be possible during Trump's second term. Ackman said in his recent posts on social media platform X that a release could occur in the next two years. Another Trump ally and billionaire, Elon Musk, owns X.

It was unclear at deadline who Trump might favor for head of the FHFA. Calabria has said he would be open to serving at Trump's direction but not necessarily in that role. Hedge fund veteran Scott Bessent is Trump's pick to head Treasury, according to NMN affiliate American Banker.

Political analysts have had mixed opinions regarding whether or not a conservatorship exit would be a priority in Trump's second term, in part because of the risk of market disruption, but his allies have increasingly voiced interest in it and are confident that a release will occur.

Bob Broeksmit, president and CEO of the Mortgage Bankers Association, issued a statement late Thursday that was supportive of the amendments and would work with the incoming Trump administration to ensure any plan would minimize disruption.

"We appreciate the rationale behind today's changes in the PSPAs, which are designed to foster transparency across government agencies, share market impact analysis and give appropriate time for market participants to provide feedback on proposed reforms," he said. "The GSEs are integral to homeownership and rental housing, and the transition to a post-conservatorship era must be done the right way with an ample timeline."

The statement reiterated MBA's position that Congress must establish an explicit backstop for the securitization market.

A recent Congressional Budget Office report indicated that recapitalizing Fannie Mae and Freddie Mac has better odds for success now than it did four years ago, but Keefe Bruyette & Woods analysts have been pessimistic about the chances of it happening in three to five years.

Rep. Patrick McHenry, R-North Carolina and chairman of the Committee of Financial Services, had requested the CBO analysis.

In addition to seeking a release from conservatorship, Republicans have sought to make more public reviews of pilots. Changes aimed at ensuring the GSEs' housing programs have "more flexibility" appear aimed at ensuring this could be done without stifling innovation.

Thompson has added some review and transparency procedures for pilots, such as a rule in 2022 requiring preapproval for Fannie Mae and Freddie Mac products. However, Republicans have remained critical of some of the GSEs' experimentation, such as a recent title waiver pilot.