Renewed efforts to privatize government-sponsored entities Fannie Mae and Freddie Mac could make it over the finish line under new leadership in Washington, according to Willy Walker, chairman and CEO of Walker & Dunlop, who discussed the possibility during a guest appearance on CNBC’s ‘Squawk on the Street’ segment.
Fannie Mae and Freddie Mac have been in conservatorship since the Great Financial Crisis of 2008-2009. President Trump’s efforts to privatize the entities during his first term were unsuccessful. However, momentum may be building again. Walker noted Treasury Secretary Scott Bessent had spoken publicly about the possibility of privatization, and Bill Pulte, the new director of the Federal Housing Finance Agency (FHFA), was highly focused on the safety and soundness of Fannie Mae, Freddie Mac, and the U.S. mortgage market during his confirmation hearings. If the GSEs continue to aggregate capital to give them a capital base that allows them to go private, potentially, they could get spun out of conservatorship under the leadership of Pulte, said Walker.
Some industry observers predict such a move would cause spreads to "gap out" and the cost of borrowing to go up, but Walker said he disagrees with that notion.
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“I think at the core of all that is the government guarantee, which right now is an implicit government guarantee, not an explicit government guarantee,” Walker said. “My thinking is that if they got spun with an implicit guarantee – with the same type of scaffolding they have around them with credit lines from the US Treasury and things of that nature – that you wouldn't see a material change in the pricing of the bonds that Fannie and Freddie issue and therefore in the cost of borrowing to the US consumer.”
Fannie and Freddie have contributed to the federal budget in recent years. More than 15 years ago, the government paid $190 billion to bail out the entities, which have already been repaid. The GSEs have earned another $100 billion for the government’s coffers. But Walker noted that it is a drop in the bucket amid budget negotiations contemplating trillions of dollars.
Privatization raises questions about the potential risk of unsafe and unsound lending practices that led to the crisis in the first place. He said Freddie and Fannie can grow their lending business by expanding their footprint or taking on more risk.
“My sense is that the American public, as well as people on Capitol Hill, do not want to see Fannie and Freddie taking more risk,” said Walker.
However, as it relates to their ability to lend more in the economy, they might raise their conforming loan limit above $800,000 or expand more into the multifamily space, said Walker.
“Those are ways for them to grow their top and bottom line,” he said.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
