Treasury Department and FHFA Take Major Steps for an ‘Orderly’ Exit of GSEs from Conservancy

“The GSEs are an integral part of homeownership and rental housing, and the transition to a post-conservatorship era must be done properly, with an extended timeline. MBA stands ready to work with the new Trump administration White Housethe Treasury Department and the FHFA – as well as Congress – to ensure this happens,” Broeksmit said.

The announcement provided more details on key parts of the changes:

• Restoration of permission rights: As amended, the PSPAs restore the Treasury Department’s right to consent to a release of the GSEs from receivership, consistent with the terms of the 2008 to 2021 PSPAs. They grant the Treasury Department the right to agree with any discretionary action by the FHFA to seek a receivership of the GSEs.
• Commitment to conduct a market impact assessmentAs reflected in the FHFA’s side letter to the Treasury Department, before the GSEs are released from receivership (other than through receivership), the FHFA will issue a public request for information detailing one or more specific options for terminating the guardianship are explained. She will seek input on the potential impact of each option on the housing market and on the GSEs. This process is intended to increase transparency for the public and key stakeholders, and will help inform the decision-making processes of the FHFA and the Department of Treasury. FHFA will brief the Treasury Department’s Financial Stability Oversight Council on the public input, including any factors that could impact U.S. financial stability. FHFA will then provide the Treasury Department with a recommended approach to ending conservatorships that will reflect public input and assess the potential impacts on the housing market and the GSEs. The Treasury Department will consult the President before agreeing to the release of the GSEs from receivership.
• Technical updates: The letter agreement updates several provisions of the PSPAs to make corrections or reflect existing practices, including making technical updates to the definitions of “indebtedness” and “mortgage assets.” It also eliminates certain business activity restrictions from the PSPAs that have been suspended since September 14, 2021; updates references to the Enterprise Regulatory Capital Framework to refer to that framework, as amended from time to time; and updates notice provisions to enable electronic communications between the parties.

The Treasury Department clarified that the agreements “do not affect the GSEs’ capital maintenance or dividend payments under the senior preferred stock issued by the GSEs to the Treasury Department.”

In addition, the statement said that the “parties are not at this time changing the expiration date of the warrants for the common shares of each GSE held by the Treasury Department. However, the Treasury Department expects that in the future the parties will agree to extend the expiration date of September 7, 2028 to the extent appropriate to avoid any possibility of a disorderly or disruptive exit from the receivership.

In 2019, the first Trump administration took some initial steps to remove the GSEs from conservatorship, allowing Fannie and Freddie in particular to begin retaining capital, but failed to gain much traction in one term. Now it has a second bite at the apple, and Trump’s former FHFA director Mark Calabria has said the administration would be better prepared this time.

At one Community Home Lenders of America At the September event, Calabria said the chances of the agencies going private in 2025 are “zero.” But he added that “through [2027] I’d say there’s maybe a 70% chance. … We’ve researched almost every decision you think you’ll have to make. All those millions of dollars with my permission, withheld actual documents produced. So there are plans; there are options. You can take them out. It is all feasible, achievable.”

On the HousingWire Daily podcast in December, author and investment banker Chris Whalen weighed in on the possibility of ending conservatorships, saying he gave it a one-in-five chance because of the difficulty. “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,” he said.

If the Trump administration is serious about the exit, Whalen said she should “get to work immediately – as soon as President Trump selects a new FHFA director.”