Participants in the agency MBS market said if the Trump administration wants to release the GSEs from conservatorship, it should be done in a way that preserves many of the functions currently provided by Fannie Mae and Freddie Mac.
The Trump administration appears unlikely in the near-term to work on ending the conservatorships of the GSEs. And any potential moves will aim to limit disruptions in the mortgage market, according to officials in the administration.
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.
If the GSEs are released from conservatorship, some participants in the agency MBS market insist the to-be-announced market, uniform MBS and Fannie/Freddie CRT activity should remain untouched.
Treasury Secretary Bessent’s cautious remarks about the prospect for GSE reform heighten industry skepticism about the release of Fannie Mae and Freddie Mac from conservatorship.
Obstacles like how to deal with the implicit guarantee and excessively high capital requirements make it unlikely that the GSEs will exit conservatorship under Trump, though the chances are higher than before his election.
The debate over how to end the conservatorships of Fannie Mae and Freddie Mac hinges on whether rating services would downgrade the GSEs if they exit without an explicit government guarantee.
The non-agency market could gain from a reduction in GSE loan limits, revision in capital requirements for banks and updated requirements for publicly registered securitizations.
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