Libby Cantrill (left), with Warren Kornfeld, (right) speaking at MBA’s Capital & Secondary Markets Conference in New York City on May 20.
NEW YORK CITY—Changes to the GSEs (Fannie Mae and Freddie Mac) are here already, in the form of new leadership, policy shifts and evolving priorities under the new Trump administration.
But the most radical change—removing the two massive companies from their 16-year government conservatorship—is losing momentum early in the administration, according to industry leaders who attended yesterday’s Mortgage Bankers Association’s (MBA) Secondary & Capital Markets conference.
MBA President Bob Broeksmit, in opening remarks that he characterized as a “case for optimism” for the Trump administration, said the GSE conservatorship has been “the elephant in the room for 15 years,” and that isn’t changing.
“It will continue to be that way for the immediate future, because in both private meetings and public comments, the administration has said that while it is on their radar, it’s not a priority,” he said.
Ahead of Trump’s inauguration, the prospect of privatizing the GSEs had what was seemingly a relatively short moment in the spotlight, with billionaire hedge fund manager Bill Ackman leading a public campaign against the conservatorship.
While proponents of the move have argued it will open up access to credit, many other housing experts warn that the process is fraught, and could easily do major harm to a fragile housing market, pushing rates higher and disrupting secondary mortgage markets.
Speaking on a later panel of investors and analysts, Libby Cantrill, managing director and head of public policy for investment management giant PIMCO, said that clients are telling her that privatizing the GSEs is just not a good idea. She also suggested the industry needed to step back and assess the big-picture goals of the effort.
“Is this a good thing for taxpayers? I think we would say unequivocally no,” she said. “Sort of socializing losses and privatizing gains…we would say that’s a bad deal for taxpayers.”
Questioning the “obsessions” with releasing the GSEs, Cantrill added that other public policy goals, including increasing liquidity in mortgage markets and shrinking government involvement in housing are questionable at best.
Another panelist, Moody’s Analytics Senior Vice President Warren Kornfeld, said that a conservatorship exit on its own could result in a credit downgrade that would be “somewhat modest,” with plenty of specific uncertainty.
New Federal Housing Finance Agency (FHFA) Director Bill Pulte, who oversees the GSEs, said yesterday at the MBA conference that it would be up to President Trump whether or not the potentially long and difficult process of ending the government conservatorship goes forward.
And while most of the speakers who opined on the hot-button issue were careful to say they weren’t ruling out an end to the conservatorship, and were prepared to take advantage of positives that may come out of that, most of the conversation was cautiously pessimistic about both goals and process. Similarly, speakers questioned whether the best-case scenario type of exit—specifically, with legislation passed by Congress that specifically provides a guarantee or backstop for the GSEs—is attainable.
“It’s not a fairy tale, necessarily, but we do believe there’s a lot of work that needs to be done,” Cantrill said.
Without a full guarantee, the issues for housing and mortgage markets would be significant, but maybe not insurmountable, according to Scott Ulm, co-CEO of real estate investment trust ARMOUR Residential REIT.
“We have lived in a world of ambiguity for many years here,” he said. “In any market system where you have some lack of clarity, there’s a price to it.”
Ulm said, adding that he doesn’t believe there will be an answer on that question “with any alacrity,” apart from uncertainty around the conservatorship exit. He also warned that a misstep around managing expectations could “quickly” cause the kind of damage that would not easily be rolled back.
Broeksmit pointed to other public but vague assurances from Trump administration officials promising that an exit from conservatorship would not “result in higher mortgage rates and costs for borrowers.”
In the long term, though, Cantrill, Kornfeld and Ulm all broadly agreed that the current system is working for the most part, with good liquidity, balanced credit and stability, with Cantrill saying “don’t fix what’s not broken.”
“Reforms can be made—again, shrinking the government’s footprint, and housing can be done—but it’s likely easier to be done in conservatorship anyway,” she said.
