Chris Whalen explores possible changes to GSE’s conservatory

In the latest episode of the HousingWire Daily podcast, editor-in-chief Sarah Wheeler talks to author and investment banker Chris Whalen to explore the potential pitfalls of ending federal conservatorships of government-sponsored enterprises (GSEs) Fannie Mae And Freddie Mac.

This interview has been edited for length and clarity. To start the conversation, Wheeler and Whalen immediately dive into the possibility of the Trump administration removing the GSEs from conservatorship.

Whalen: Yes, it can happen. My assumption in our writing is that there will be no legislation, because that is far too difficult. And honestly, they don’t have time. If you take the GSEs out of conservatory, it will take a few years to get done.

You have to turn these things back into something that resembles a private company. Banks and non-banks have changed dramatically over the last fifteen to sixteen years. You need someone at the Federal Agency for Housing Financing (FHFA) who understands finance and takes it as their top priority. The Ministry of Finance will still have to guarantee the bonds. We can’t afford to play around with the idea of ​​taking them out of conservatorship and not letting the United States take those bonds.

Cyclist: What timeline are we looking at, assuming we don’t work on the legislative solution?

Whalen: We must get to work immediately – as soon as President Trump selects a new FHFA director.

Cyclist: If you work at an IMB as a mortgage advisor or real estate person, why are you concerned about this?

Whalen: Well, the cost of conventional mortgages will rise. Also, the people selling loans to Fannie and Freddie today could become their competitors. From a competitive perspective, it will be a very interesting situation.

Cyclist: A Trump administration could mean less regulation. What does that look like in terms of market instability?

Whalen: Due to time pressure, the Association of Mortgage Bankers (MBA), the American Bankers Association (ABA) and all trade groups must make a decision quickly. Are we against release without legislation? That’s going to take more than four years, and the entire industry will unite to oppose releasing the GSEs if Trump tries to do it this way.

I have told my readers that there is a one in five chance that you will see a release with the current law and no legislation.

Cyclist: If you’re looking at a one in five chance as a business owner, how do you plan?

Whalen: You should pay attention to the conventional loan prices. And what will be the assessment for Fannie and Freddie if they are released? Money on Wall Street moves for ratings. Spreads will also widen. Overall, it will be fun to watch this.

To close the conversation, Whalen speaks about the potential safety and security of the entire mortgage market if the GSEs leave receivership.

Whalen: There are still many remaining issues from 2020 to 2021 that have not yet been resolved, and I think we need to be careful. But unfortunately politics is not careful and I suspect that the Trump people will try this.