Fannie Mae and Freddie Mac are not likely to be released in the next four years, a former executive at one of the government-sponsored enterprises said.
While it is still too early to truly know how events will unfold, former Freddie CEO Don Layton, thinks the Trump administration "will take a lot of steps to move the ball down the court, but that's as far as they'll get in the next four years."
Getting their ducks in a row by mending their preferred stock purchase agreements (PSPAs) and figuring out the amount of capital needed to go private could take up to six years, Layton said speaking at Harvard University's Joint Center for Housing Studies.
"The new administration made no commitment that it would be quick," he noted. "In fact, they said the opposite. That's because no one wants to screw up the mortgage system where all of a sudden mortgage [interest rates] rise to 9%."
This runs counter to mainstream predictions from stakeholders that the two entities would be re-privatized within the next to three years, through a
Hedge fund billionaire Bill Ackman, an active Trump supporter, has vocally expressed his belief that the exit would
What privatization of Fannie Mae and Freddie Mac could look like
Ackman has posited that if the government agrees to retire Fannie and Freddie's senior preferred stock and the capital ratio of the enterprises is reduced to 2.5%, the housing entities would need about $30 billion in combined capital to stage an initial public offering in 2026.
Even if the government-sponsored enterprises are released from conservatorship, the Federal Housing Finance Agency will continue to maintain strict oversight, former Freddie Mac President Don Layton said. That oversight is necessary, he added, because privatizing Fannie Mae and Freddie Mac would likely give the entities more flexibility to loosen credit standards.
"The concern might be they would get too frisky and be too loose [with credit requirements] and that's why you have a regulator," he said. "I would expect the FHFA to be able to do its job and make sure the GSEs don't get too frisky on credit."
Looser credit standards could push privatized Fannie Mae and Freddie Mac into the non-QM market, some have predicted.
Whatever the outcome could be, Layton thinks that there is a high chance that borrowers will to some degree feel the brunt of Fannie and Freddie being released into the wild.
"Will mortgage rates be higher or lower? That depends on where inflation and Federal Reserve policy is," he said. "How can GSEs impact mortgage rates? If their release is messed up, rates could go up 10,15, 20 basis points."
