RE G U LATO R S A N D AG E N C I E S
The GSEs Won’t Escape Conservatorship This Year BIDEN ADMINISTRATION WON’T GIVE UP CONTROL OF HOUSING FINANCE DURING PERILOUS ECONOMY By B RIA N HON EA
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he once mighty GSEs were controversially forced into conservatorship by the FHFA in September 2008 amid the greatest housing crisis the country has ever seen.
The FHFA has now been operating the GSEs in conservatorship for a dozen years and the conservatorship remains just as controversial as it was in 2008 as Fannie Mae and Freddie Mac continue to turn profits. In the months leading up to the presidential election, rumors swirled regarding a possible exit from conservatorship in 2021, but just how likely is that? Mortgage Banker recently spoke with Dr. Michael Stegman, Senior Fellow, Housing Finance Program, Center for Financial Markets at the Milken Institute and a former senior policy advisor for housing on the staff at the National Economic Council, and former counselor to the secretary of the Treasury for housing finance policy about that possibility.
DR. MICHAEL STEGMAN SENIOR FELLOW, HOUSING FINANCE PROGRAM, CENTER FOR FINANCIAL MARKETS AT THE MILKEN INSTITUTE
MB: What is the prospect of the GSEs exiting conservatorship in 2021? STEGMAN: If there is not a premature release under a consent order before January 20, which I think would be a very big mistake, I am quite certain that the GSEs will still be in conservatorship by the end of 2021. Unlike the Trump administration, the Biden team will not see ending the conservatorships as a policy priority. They will take their time formulating their strategy for the future of the GSEs and the role government should play in a reformed housing finance system. MB: There have also been rumors that the conservatorship will end in 2024. How would you address that? STEGMAN: As I said, ending the conservatorship is not going to be a be all, end all policy goal of the Biden administration. It will be the natural outgrowth of a GSE reform strategy that I think ultimately will
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involve at least one more serious effort at bipartisan legislation to clean up what you can’t do administratively, such as an explicit paid-for federal guarantee of their MBS. To say 2024 is purely speculative, likely based on a combination of the time it would take for the GSEs to build capital to required levels, and more importantly, a recognition that the new administration has many other major crises to deal with before it turns to GSE reform. I can’t say if they are going to exit in 2024, but it’s certainly not going to be near term. As I said, recapitalizing and releasing the GSEs is not a Biden administration policy goal. In terms of a timeline, I would think that they would want to keep the GSEs in conservatorship at least until we reach the other side of the pandemic to maximize their role in helping struggling families who are on the edge of eviction and losing their homes because of the pandemic. Before settling in on a plan for the future, the team will take a real serious look at how the GSEs could improve racial eq-
