Trump Administration Aims to Complete Privatization of Fannie and Freddie
There is strong anticipation that the Trump administration will follow through on their initial plans to privatize Fannie Mae and Freddie Mac during his first term. While this process is expected to take several years, groundwork was laid earlier this year with the announcement of an agreement to amend the Preferred Stock Purchase Agreements (PSPAs) with the two entities. Fannie and Freddie currently owe $330 billion in senior preferred stock to the Treasury.
The amended agreement, as stated by the Treasury, is designed to “help ensure that the eventual release of the GSEs from conservatorship will be orderly and to reflect certain existing practices.”
Smooth Transition
The importance of a smooth transition out of conservatorship is a key focus for discussions surrounding this exit strategy. This sentiment was echoed by Pulte during his confirmation hearing in February, where he emphasized the need for careful planning to maintain the safety and soundness of the housing market without causing disruptions to mortgage rates.
The Mortgage Bankers Association has also emphasized the necessity of a safe and sound exit, outlining four overarching principles that should guide the release of Fannie and Freddie:
- An explicit backstop. This is crucial for maintaining global investor confidence and market liquidity.
- A level playing field. Ensuring consistency in pricing and underwriting for all lenders.
- The distinction between primary and secondary market functions. This must be clearly defined and enforced.
- Regulatory enhancements at FHFA. Granting necessary powers to regulate GSE rate of return and market conduct.
Challenges Ahead: Tax Legislation
Despite progress in other areas, a significant obstacle remains in the form of passing tax legislation to make the 20% deduction of qualified income for pass-through businesses permanent. This provision, part of the 2017 Tax Cuts and Jobs Act, is set to expire at the end of the year without congressional action.
Treasury Secretary Scott Bessent has highlighted tax policy as the current priority, emphasizing the importance of ensuring that any actions taken do not lead to an increase in mortgage rates. The timing for passing the tax bill remains uncertain as details are still being finalized in Congress.
For more information on how Trump’s actions impact the housing market, stay updated with our latest updates.