Chris Whalen examines potential GSE conservatorship changes
Podcast Editor-in-Chief Sarah Wheeler sits down with an author and investment banker 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 getting the GSEs out of conservatorship.
Whale: Yes, it can be. My assumption in our writing was that there would be no law because it is too difficult. Honestly, they don't have time. If you intend to take the GSEs out of conservatorship, you will need several years to prepare.
You have to turn them back into something close to a private company. Banks and non-banks have changed dramatically over the past 15 or 16 years. You (FHFA) need someone who understands finances and makes it a top priority. The Treasury would still have to guarantee the bonds. We cannot toy with the idea of taking them out of conservatorship and not keeping these bonds wrapped by the United States.
Wheeler: Assuming we don't have a legislative solution, what timeline are we looking at?
Whale: As soon as President Trump selects a new FHFA director, we need to get to work immediately.
Wheeler: If you work for IMB as a mortgage loan officer or real estate professional, why do you care?
Whale: Well, the price will go up. Also, the people selling loans to Fannie and Freddie today may be their competitors. It will be a very interesting situation in terms of competition.
Wheeler: You can say the Trump administration. What does this look like in terms of market volatility?
Whale: Due to time constraints Mortgage Bankers Association (MBA), the American Bankers Association (ABA) and all trade groups must decide quickly. Are we against illegal release? It will take more than four years, and if Trump tries to do it this way, the entire industry will unite to oppose the release of the GSEs.
I've told my readers that there's a one in five chance you're going to make it with the current law and no law at all.
Wheeler: As a business owner, when you're looking at a one-in-five chance, how do you plan?
Whale: You should pay attention to traditional loan prices. Also, how will Fannie and Freddie be rated when they are released? Money on Wall Street moves for ratings. Spreads will also widen. Overall, this will be fun to watch.
To close, Whalen talks about the potential safety and security of the entire mortgage market if the GSEs leave conservatorship.
Whale: There are many unresolved issues from 2020 to 2021, and I think we need to be careful. But unfortunately, politics is not prudent, and I suspect the Trump people will try to do just that.
