If confirmed as Treasury’s head of domestic finance, Jonathan McKernan could have a say in whether the GSEs are released from conservatorship. If so, he may have to renounce an FHFA rule created when he was senior counsel at the agency.
The FHFA director suggested the decision on whether to release Fannie and Freddie from conservatorship depends mostly on President Trump and Treasury Secretary Scott Bessent.
Recent comments by the FHFA director suggest the Trump administration has no immediate plans to release Fannie and Freddie from conservatorship. Rather, FHFA will continue to focus on fraud and abuse at the enterprises.
Like most GSE reform plans, the hedge funder’s plan to privatize Fannie and Freddie starts with Treasury writing down its senior preferred shares and FHFA sharply reducing the capital requirements for the GSEs.
Smaller shops may support an end to the GSE conservatorships, but only if it’s done in a way that preserves pricing parity, avoids additional charters and maintains the cash window.
S&P says the current AA+ rating enjoyed by the GSEs is a function of their government support. Because of their capital shortfalls, both GSEs have a B- standalone credit profile rating.
Volume of noncore products at the GSEs shifted downward in the first quarter as questions around the future of Fannie Mae and Freddie Mac persist. (Includes data table.)
Analysts worry that FHFA’s more hands-on intervention in GSE management may hint at the return of the net worth sweep and the dashing of any hopes of an end to the conservatorships.