The Trump administration is expected to try to remove the government-sponsored enterprises (GSEs) from conservatorship, but it probably won’t be fast and it probably won’t be without considerable strife.
At the Mortgage Bankers Association (MBA)’s Servicing Solutions Conference & Expo in Dallas on Thursday, experts shared their views on when Fannie Mae and Freddie Mac might be returned to the private sector, and what this move would look like for servicers.
Simply put, it all starts with the tax cuts that are set to expire at the end of this year. Any package that’s passed would be a multitrillion-dollar effort, and lawmakers will have to resolve a debt-ceiling expiration in March as well. It could go to the bitter end.
On the likelihood that the GSEs could exit in the short term, BTIG‘s Isaac Boltansky said it’s “possible but not probable. You need actual movement from key people at FHFA and Treasury to get them out, and then there’s the three Ps — procedural, political and policy.”
MBA president and CEO Bob Broeksmit noted that the government still needs to address the $330 billion in senior preferred stock owed to the Treasury department.
“If you want to do anything to the capital stack, that has to be addressed,” Boltansky added. “There’s a lot of ways to do it, but it would take time.”
The specter of the tax cuts means the government may try to eke more money out of Fannie Mae and Freddie Mac. “I think they’re looking under every couch cushion,” Bolantsky said, adding that guarantee fees and loan-level pricing adjustments (LLPAs) might increase.
For mortgage servicers, GSEs with a smaller focus should boost the private-label security market. But a release of the GSEs could also impact some innovation efforts, said Faith Schwartz, CEO of consulting firm Housing Finance Strategies LLC.
“Government has helped with a lot of innovation on the run,” Schwartz said. “I think they’ve positioned us well to do more private-sector solutioning than probably ever before.
“I think it’s unlikely this administration will support innovation like they used to. I think they’ll look hard at all the pilots and trying to make sure they don’t creep into the private market. I think the administration wants private capital leading the way on innovation.”
If the GSEs do go through the process of exiting conservatorship, one group of people should stay on the sidelines, according to Boltansky. “The more you see Congress involved, the less likely it is to happen,” he said.
