PORTFOLIO MANAGEMENT FANNIE AND FREDDIE 3.0 The Trump Administration Begins the Process of Reprivatizing the Housing GSEs Sept. 7, 2008, was a watershed in the history of housing finance. On that day, as housing market conditions deteriorated, Fannie Mae and Freddie Mac, the two massive housing government-sponsored enterprises (GSEs), were placed in “temporary” conservatorship. The shareholders, both common and preferred, were essentially wiped out. The bondholders, who included community banks, ironically had their positions preserved, as the federal government all but guaranteed the GSEs’ debt. Fast forward to 2025, and not much has changed. You and I still own Fannie and Freddie. Their bonds, still a staple of community bank investment portfolios, are considered safe by investors and banking regulators. What has changed is the new presidential administration, which seems highly interested in completing the job of reprivatizing these entities. We’ll investigate what this strategy may look like, and how this could affect your community bank. Ending the GSE Conservatorship During the first Trump administration, Treasury Secretary Steven Mnuchin and Federal Housing Finance Agency (FHFA) Director Mark Calabria initiated the process of ending the conservatorship but were not able to complete it. However, they did finalize a robust capital framework for the GSEs and directed the GSEs to retain earnings to build capital. Under the Biden administration’s watch, with no new actions to end the conservatorship, the GSEs continued to build capital in accordance with the Enterprise Capital Framework, which calls for very robust levels of capital and will make exiting the conservatorship easier. Currently, the GSEs have far more capital than in 2008, before they were placed into conservatorship. We should clarify that the GSEs are not government agencies. Rather, they are government-chartered, shareholder-owned private companies, like national banks. However, during the past 16 years, their regulator, FHFA, has run both companies. Imagine if the Federal Reserve or the Office of the Comptroller of the Currency (OCC) did that to banks. Like many private companies — including some automobile manufacturers, insurance BY JIM REBER ICBA SECURITIES AND RON HAYNIE, ICBA 6 In Touch
RkJQdWJsaXNoZXIy MTg3NDExNQ==