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Treasury and FHFA Agree on Administrative Logistics for GSE Reform

January 7, 2025

The Treasury Department and Federal Housing Finance Agency (FHFA) announced on Jan. 2 an agreement that would give Treasury the ability to block any proposal to remove Fannie Mae and Freddie Mac (the Enterprises) from conservatorship.

• The agreement restores Treasury’s previous right to consent to a release of the GSEs from conservatorship.
• Under a separate side letter from FHFA to Treasury, FHFA will solicit public input on the potential impacts on the housing market and the GSEs, before releasing the GSEs from conservatorship.
• Additionally, Treasury will consult with the President prior to consenting to a release of the GSEs from conservatorship.

Many market participants believe that President-Elect Trump will prioritize removing the Enterprises from conservatorship.

• This could be effected via either legislatively or administratively, with the FHFA declaring the Enterprises ready for exit.

What they’re saying: According to TD Cowen’s Jaret Seiberg:

“We see this as an effort by the Democrats to ensure Donald Trump owns any negative outcome from ending the conservatorships of Fannie and Freddie as it deprives Team Trump from saying the independent regulator made the decision to proceed with recap and release.”

However, the Trump administration could amend or nullify this agreement. According to Jonathan McKernan, a commissioner at the Federal Deposit Insurance Commission (FDIC) and potential contender for new FHFA director, the agreement marked a:

“Bad day for financial stability and protecting taxpayers against bailouts . . . even if all easily reversed.”

What's next: CREFC will keep a close watch on developments related to GSE reform, ensuring that our members are able to comment on potential paths for an exit from conservatorship.

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