Don Layton, under whose leadership Freddie rolled out the first CRT transaction in 2012, said cracks in the GSEs’ CRT programs expose them to systemic risks. The cure: a new capital rule.
Although FHFA Director Bill Pulte recently put the value of the GSEs at $1 trillion, most estimates are between $300 billion and $600 billion. Meanwhile, Commerce Secretary Howard Lutnick suggested that only a small portion of the GSEs will be sold via a stock offering.
Key mortgage industry stakeholders say an IPO of GSE stock would have trouble attracting investors if FHFA remains their conservator or they are released without an explicit guarantee.
Many stakeholders remain skeptical of the Trump administration’s efforts to release the GSEs from conservatorship, but some analysts now say the process need not meaningfully impact mortgage rates.
Critics say capital is not necessarily the main impediment to ending the conservatorship. A bigger problem is the lack of planning on what the GSEs should look like after they exit.
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.
Three former CEOs of the GSEs this week debated the impact of federal conservatorship, what steps must be taken to safely end the oversight and what the GSEs should look like afterwards.