November 16, 2020
Orion’s brokers tend to be very good at keeping an eye on their clients, and what Orion product and pricing work for them, but also keeping an eye on national mortgage trends. Freddie Mac and Fannie Mae are such a huge part of the mortgage world these days, Orion’s management felt that it would be good to remind our clients what to watch for in the near future. Especially give that Freddie Mac’s CEO announcement last week that he is exiting Freddie.
FHFA Director Mark Calabria, appointed by President Trump, has repeatedly sent out the message, “The path out of conservatorship will not be driven by the calendar. It will be driven by Fannie and Freddie meeting the mile markers set out for them.” At Calabria’s most recent Congressional testimony, he reiterated his belief that capital is paramount and that his statutory duty is to responsibly end the GSE conservatorships.
Director Calabria, in answering a recent question, replied that he, “Could not envision a scenario where they would be willing to leave (conservatorship) before the end of the year” and restated that the GSEs will not be released unless they are ready. Orion’s broker clients were somewhat puzzled by this, given the potential impact of the election which has now pretty much showing a balance of power but a Democrat as President.
Analysts will tell you that while ending the GSE conservatorships this year appears unlikely, envisioning “a scenario” could mean that if the election changes the landscape, releasing F&F from conservatorship might be rushed through Congress. Although highly unlikely, there is a chance. Brokers should know that the PSPA amendment (a separate issue) must be addressed prior to private capital being raised.
What about a phase in-between conservatorship and being private companies? Consent decrees can be used to scale back some of the regulatory burdens and create an environment necessary to attract equity capital without sacrificing prudent oversight. These, combined with progress on the PSPA, are a distinct possibility during a “lame duck” time period before the January inauguration, assuming there will be one and the election results aren’t tied up in the courts. The GSE conservatorships will almost certainly end by 2024 given the length of Director Calabria’s term and Treasury Secretary Mnuchin’s comments to date.