In the years up to the 2008 market crash, a variety of players made lousy real estate mortgage loans backed by the full faith and credit of the US gov. Freddie and Fannie, in those years, turned over loan origination decisions to private/non-government actors who were driven by fee generation and cared little if the loan ever got repaid...it's was the government's problem.
Trump's idea could have merit if the specifics don't privatize the business but leave the Federales on the hook. The details on this one matter and haven't come into focus yet.
Trump’s Housing Chief Embarks on Shake-Up at Mortgage Giants Fannie Mae and Freddie Mac
Administration has discussed privatizing the two firms
By Gina Heeb, WSK
March 23, 2025 12:56 pm ET
Homes under construction in Arizona in 2022. Photo: Rebecca Noble/Bloomberg News
In his first full week as head of the Federal Housing Finance Agency, home-builder heir and former private-equity executive William Pulte ousted more than a dozen board members at mortgage giants Fannie Mae and Freddie Mac.
Pulte made himself the chairman of the boards and installed a set of new directors (one of them was Christopher Stanley, an Elon Musk ally who resigned from the post a day later). He removed senior executives at the companies and the FHFA, which regulates Fannie and Freddie. Among those let go was Freddie CEO Diana Reid.
“There are some really great people inside of these businesses, and the good news for them is there is a lot of upward mobility, to earn and grow MORE!” Pulte said on X on March 16, a day before the board changes. The FHFA declined to comment further.
At the FHFA, at least dozens have been placed on administrative leave, according to the National Treasury Employees Union. Some employees were told to go to an old cafeteria space, where they were told they were being placed on indefinite leave, according to a person familiar with the matter. The FHFA had more than 700 employees in 2024.
Far bigger changes have been discussed as well. Trump officials have said they would pursue efforts to privatize Fannie and Freddie, a monumental undertaking that the first Trump administration wasn’t able to pull off.
A proposal floated to the administration last week by a Trump ally laid out how the government could transfer Treasury’s ownership of the mortgage giants to the sovereign-wealth fund that President Trump has vowed to create, according to a person familiar with the matter.
Treasury Secretary Scott Bessent also last week suggested on a podcast that the administration could use Fannie and Freddie for a sovereign-wealth fund, though he didn’t elaborate on specifics.
Countries generally fund sovereign-wealth funds with surplus revenue, but the U.S. runs a large budget deficit each year.
Privatizing Fannie and Freddie, which came under government control after the 2008 financial crisis, could generate a windfall for the government. One proposal circulated in recent months estimated that the privatized entities would be valued above $330 billion, with the government’s stake at more than $250 billion.
Under that plan, Fannie and Freddie would raise an additional $20 billion to $30 billion from new investors, akin to an initial public offering. A raising of that size would put it on par with the largest IPOs of all time.
Bill Pulte testifying at a Senate Banking Committee hearing.
William Pulte, now director of the Federal Housing Finance Agency, testifying at a Senate Banking Committee confirmation hearing in February. Photo: Annabelle Gordon/Reuters
The mortgage giants bundle and sell mortgages, with a government guarantee to protect investors from losses when homeowners default. That allows lenders to originate more mortgages.
The administration has in recent months considered issuing an executive order on housing that could include directing departments to study privatization of Fannie and Freddie, according to a person familiar with the matter.
Trump allies and other Republicans view privatization as a way to reduce the country’s deficit and return money to taxpayers.
If not done carefully, some worry that privatization could drive investors to demand higher premiums in the mortgage-backed securities market. That would trickle through to borrowers in the form of higher mortgage rates. Pulte and Bessent have said that any privatization efforts would need to take into consideration the effect on mortgage rates.
Meanwhile, bankers, regulators and other industry players have privately worried about whether the latest management and staffing turmoil at Fannie and Freddie could cause even small disruptions in the multitrillion-dollar mortgage market.
Pulte has already sought to reduce head count in an FHFA department that oversaw fair-housing rules for the Federal Home Loan Bank system, a source of liquidity for banks. Another department that worked on housing-finance research was also targeted.
One top bank regulator said that even relatively minor mechanical issues, such as with mortgage pricing or other data, could spook investors in the mortgage-backed securities market. That could keep mortgage rates elevated or push them higher at a fragile moment in the U.S. housing market.
In regard to the changes at Fannie, Freddie and the FHFA, a White House spokesman said in a statement that industry leaders “have responded to President Trump’s America First economic agenda of tariffs, deregulation, and the unleashing of American energy with trillions in investment commitments that will create thousands of new jobs.”
For now, Moody’s chief economist Mark Zandi said that he doesn’t see immediate threats from the board and management changes at Fannie and Freddie because the U.S. economy remains stable.
But he said that any economic downturn and rise in defaults would “put a lot of pressure on a pretty unseasoned board and management team.”
Write to Gina Heeb at gina.heeb@wsj.com
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