How a Trump win would impact GSE reform

Former President Trump hasn't confirmed government-sponsored enterprise reform would be on his agenda if elected to a second term and he has distanced himself from assertions about it, but a growing number of former officials from his administration are backing the concept.

When asked at an event on Thursday if it would be a priority for Trump, a former regulator from his administration, Mark Calabria, told attendees, "yes." Also, the Wall Street Journal reported Friday that at least two other former Trump associates are working on a privatization plan. 

Calabria's comment, combined with the anonymously-sourced WSJ report about a group said to include two former directors from the Trump administration, adds to speculation in Project 2025 that a Trump win could lead to conservatorship exit.

But Calabria, who previously worked with former Treasury Secretary Steve Mnuchin to prepare Fannie Mae and Freddie Mac for a move toward privatization during the Trump administration, said at the Bipartisan Policy Center event that it would be unlikely to materialize soon.

"An exit from conservatorship is not a 2025 event. It's more '27/'26," Calabria, who was the former head of the Federal Housing Finance Agency, said in a interview with Dennis Shea, executive director of the J. Ronald Terwillinger Center for Housing Policy.

The projection is in line with comments Calabria made earlier this year suggesting that a release from conservatorship would likely take a couple of years.

Bose George, Alexander Bond and Tommy McJoynt, equity analysts said in a report commenting on the WSJ article that "there is likely to be significant upside to both common and preferred shares in the event of a Trump victory in November."

But while Calabria is confident that taking GSEs that control a significant chunk of the mortgage market out of conservatorship in the next four years is possible, the KBW analysts said they foresee "logistical challenges."

Calabria has acknowledged that a lot of issues would have to be addressed to make a release from conservatorship possible, including asset-liability imbalances the GSEs have and the Treasury's senior preferred shares, but he added that there are mechanisms for handling them.

The WSJ's article focuses on a group said to be figuring that out which includes Larry Kudlow and John McEntee, who are respectively former directors of the National Economic Council and White House personnel office. But it also notes FHFA and Treasury's importance.

There's been some speculation about who would head those agencies in a second Trump administration.

Calabria has said he would serve again if asked in whatever role was best, but it wouldn't have to be the FHFA role. Some political analysts have speculated that Jonathan McKernan, director on the Federal Depositor Insurance Corp.'s board, could be FHFA chief under Trump.

The WSJ has identified multiple possible Treasury picks under Trump that include John Paulson, a high-profile investor and Trump supporter who owns GSE shares; former Securities and Exchange Commission Chairman Jay Clayton and JPMorgan Chase CEO Jamie Dimon.

Both GSEs' shares initially were up roughly 10 cents in response to growing speculation about the possibility of privatization in a second Trump administration but later saw their gains on the day pared down to pennies.