Trump’s Goal: Completing Unfinished Business from First Term
There is a strong anticipation that the Trump administration will follow through on their initial plans and privatize Fannie Mae and Freddie Mac. While this process is expected to take several years, the groundwork was set earlier this year when the Treasury Department and FHFA announced an agreement to amend the Preferred Stock Purchase Agreements (PSPAs) with the two government-sponsored enterprises. Fannie and Freddie currently owe $330 billion in senior preferred stock to the Treasury.
In a statement released by the Treasury, it was mentioned that the amended agreement aims to facilitate an orderly release of the GSEs from conservatorship and align with existing practices.
Ensuring a Smooth Transition
The orderly exit from conservatorship is a key focus for discussions surrounding the release of Fannie and Freddie. This was emphasized by Pulte during his confirmation hearing in February, highlighting the importance of careful planning to maintain the stability of the housing market and prevent any significant impact on mortgage rates.
The Mortgage Bankers Association has also stressed the need for a safe and sound exit strategy, outlining four core principles that should guide the release of Fannie and Freddie:
- An explicit backstop: Ensuring global investors’ confidence in GSE mortgage-backed securities.
- A level playing field: Implementing consistent pricing and underwriting standards for all lenders.
- The clear distinction between primary and secondary market functions: Enforcing defined boundaries.
- Regulatory enhancements at FHFA: Granting necessary powers to regulate GSE rate of return and market conduct.
Overcoming Challenges: The Role of a Tax Bill
Despite progress towards an exit strategy, a significant hurdle remains in securing a tax bill to make the 20% deduction of qualified income for pass-through businesses permanent. This provision of the 2017 Tax Cuts and Jobs Act is set to expire at the end of the year without congressional action, making it a top priority for Treasury Secretary Scott Bessent.
In an interview with Bloomberg, Bessent highlighted the current focus on tax policy and its impact on long-term mortgage rates as a key consideration for the release of Fannie and Freddie. The specifics of the tax bill are still being discussed in Congress, with no clear timeline for passage.
For more information, explore the updated list of all Trump’s actions influencing the housing market.