Joseph Otting is the acting director of FHFA while Mark Calabria is Trump’s nominee to be the new FHFA director and Fannie Mae – Freddie Mac regulator.
(Bloomberg) — Fannie Mae and Freddie Mac shares soared Friday amid fresh reports that the Trump Administration is working on proposal that would recommend freeing the mortgage-finance giants from government control.
Joseph Otting, acting director of the Federal Housing Finance Agency, commented on the administration’s plans at an internal gathering to introduce himself to staff and establish open lines of communication, an FHFA spokesperson said in a statement. MarketWatch reported on the meeting earlier Friday.
Otting mentioned, as he previously has, that the Treasury Department and the White House are expected to release a broad plan for housing that will include details about reform and will likely include a recommendation for ending Fannie and Freddie conservatorships, the FHFA spokesperson said. Treasury Secretary Steven Mnuchin has said that the Trump administration wants to end government control of the companies, and Otting intends to work to advance that plan, the spokesperson said.
Shares of Fannie rose more than 31 percent to $2.37 and Freddie Mac climbed 24 percent to $2.25 at 2:05 p.m. in New York. The increases were the biggest since November 30, 2016, when then-Treasury Secretary nominee Mnuchin first said getting the companies out of the government’s grip was a priority.
Investors in the two companies, which have been under U.S. control since the 2008 financial crisis, have been optimistic that President Donald Trump’s appointees at Treasury and FHFA will allow them to reap a windfall by ending the conservatorship. Hedge funds, including Paulson & Co. and Bill Ackman’s Pershing Square Capital Management, are among the companies’ biggest shareholders.
Fannie and Freddie don’t lend. Instead, they underpin the mortgage market by buying loans from banks, packaging them into securities and making guarantees to investors in case borrowers default.
The statement by Otting, who is serving as interim FHFA director in addition to heading the Office of the Comptroller of the Currency, corroborates earlier reports that the administration is working on a plan. Still, the FHFA spokesperson didn’t offer details on what might be included in any proposal, such as whether Treasury would call for releasing the companies without Congress passing legislation.
Mnuchin has long promised to deal with Fannie and Freddie but two years into the Trump administration he has yet to outline specific steps he wants to take. That’s prompted many lobbyists and housing-policy analysts to question whether there’s an urgency to take bold measures.
Walt Schmidt, head of mortgage-backed securities research at FTN Financial, said he’s skeptical the White House would want to mess with U.S. housing policy with Trump gearing up for a re-election campaign. Any plan could be received poorly, underscoring the fact that the issue poses political risks with uncertain upside.
“The whole GSE system and conservatorship is fairly intractable because of the political ramifications around housing,” Schmidt said. “I don’t know why the administration would want to upset one of the pillars of our economy so significantly going into the next presidential election.”
Will Mark Calabria rock the housing finance boat? Mark is a seasoned DC insider and has worked with the National Association of Homebuilders, so he knows the importance of housing to the US economy. I haven’t talked with Mark since we ate dinner at BLT Steakhouse in DC a while ago when he was still at The Cato Institute.
But will Fannie and Freddie be set free as in “Let my GSEs
people go.” Or will Calabria shut them down and turn over housing finance to the largest banks for mortgage origination (in this case, Quicken Loans)?
It is difficult to tell if anything will be done. It also be could be the Zandi/Parrot model of expanding Fannie/Freddie’s role in mortgage markets or Calabria’s notion of shrinking their footprint. It really depends on “What is hip?” in Washington DC.
Below is Mark Calabria pleading to Let Our GSEs Go!. Or will he?