In the new episode of HousingWire Daily podcast, Editor-in-Chief Sarah Wheeler sits down with author and investment banker Chris Whalen to explore the potential pitfalls of ending government bailouts of government-sponsored enterprises (GSEs) Fannie Mae again Freddie Mac.
This interview is edited for length and clarity. To begin the conversation, Wheeler and Whalen quickly dive into the Trump administration’s ability to exclude the GSEs from conservation positions.
Whale: Yes, it is possible. My thinking in our writing has been that there will be no law, because that is too difficult. And honestly, they don’t have time. If you are going to get GSEs out of the Conservatory, it will take you a few years to prepare.
You have to turn these things into something closer to a private company. Banks and non-banking companies have changed a lot over the last 15 or 16 years. You need someone in the area Federal Housing Finance Agency (FHFA) who understand finances and take this as their top priority. The Ministry of Finance will still be required to guarantee the bonds. We cannot play with the idea of taking them out of conservatorship and not keeping those bonds wrapped by the United States.
Wheel: What timeline are we looking at, considering we are not making a formal settlement?
Whale: We have to start soon – as soon as President Trump nominates a new FHFA director.
Wheel: If you work at IMB as a mortgage loan officer or real estate agent, why do you care?
Whale: Well, the cost of regular mortgages will go up. Also, the people selling loans to Fannie and Freddie today may be their competitors. Competitively, it will be a very interesting situation.
Wheel: A Trump administration could mean less regulation. What does that look like in terms of market volatility?
Whale: Due to the lapse of time, the Mortgage Bankers Association (MBA), i American Bankers Association (ABA) and all trade groups must make a quick decision. Do we oppose emancipation without the law? That will take more than four years, and the entire industry will come together against the GSEs if Trump tries to do it this way.
I have told my students that there is a one in five chance that you will see an exemption with the current law and no law.
Wheel: If you face a negative one in five as a business owner, how do you plan?
Whale: You should pay attention to the rates of conventional loans. Also, what will Fannie and Freddie’s ratio be when they are released? Money on Wall Street moves the ratings. The spread will increase. Overall, this will be fun to watch.
To close the discussion, Whalen talks about the potential safety and security of the entire housing market if the GSEs leave custody.
Whale: There are many issues left from the period of 2020 to 2021 that have not been resolved, and I think we have to be careful. But unfortunately, politics is not careful and I suspect that Trump’s people will try to do this.
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