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Update: Election Scenario Analysis on Housing Finance (GSE) Reform

October 22, 2024

As part of our continuing analysis leading up to the Nov. 5 election, CREFC’s Government Relations Team is updating its Election 2024 Scenario Analysis. This week focuses on housing finance reform, specifically if, and how, Fannie Mae and Freddie Mac—the Government-Sponsored Enterprises (GSEs)—will exit conservatorship.

• Click here for the updated document.

Why it matters: The Federal Housing Finance Agency (FHFA) took over as conservator of Fannie and Freddie on Sept. 6, 2008. While there have been regulatory changes to some key elements of the structure, there is still no clear exit date or active plan to release the housing agencies from the conservatorship.

• By the numbers: Although the single-family mortgage business dominates the GSE headlines, the agencies are a large component of the multifamily lending market, backing $870 billion worth of multifamily mortgages.
• What they’re saying: The mechanics of GSE reform are not a key campaign talking point, but housing and affordability are priorities for both campaigns.

Trump Positions: While in power, the Trump Administration prioritized a GSE conservatorship exit, which kicked off with a White House Memo in March 2019 directing Treasury to develop a housing finance reform plan that included setting the conditions necessary for an exit.

• Treasury and FHFA followed suit with a September 2019 Housing Finance Reform Plan that laid out the steps for a conservatorship exit.
• FHFA and Treasury also amended the Preferred Stock Purchase Agreements (PSPA) to curtail all of the GSE profits going to the Treasury, allowing Fannie and Freddie to build capital.
• Former FHFA Director Mark Calabria also reworked the multifamily caps with a hard limit that required a certain percentage of mission-driven lending.
• However, the pandemic likely derailed these efforts and even a last-minute amendment to the PSPAs in January 2021 before President Biden took office did not end the conservatorship.

Yes, but: After leaving office, former President Trump sent a letter to Sen. Rand Paul (R-KY) in November 2021 indicating he would have ended the conservatorship earlier if he could have fired the then-FHFA Director Mel Watt:

“The Supreme Court’s decision asks what I would have done had I controlled FHFA from the beginning of my Administration, as the Constitution required. From the start, I would have fired former Democrat Congressman and political hack Mel Watt from his position as Director and would have also sold the government’s common stock in these companies at a huge profit and fully privatized the companies.” -Former President Trump

Harris Positions: While Vice President Kamala Harris has made housing affordability a campaign priority, she has not specifically weighed in on GSE conservatorship. And the Biden Administration has not made an exit a specific policy priority.

• However, FHFA Director Sandra Thompson has continued to finalize GSE regulatory capital rules and allow them to build capital, with a combined net worth of $125 billion in April 2024.
• Instead of facilitating an exit from conservatorship, FHFA under the Biden Administration has been exploring and implementing ways to use the GSEs to advance housing priorities. A 2023 FHFA Request for Information sought public response on a number of tenant protections, including rent control.
• This RFI culminated in a July 2024 release mandating certain tenant protections in new multifamily loan agreements, starting February 2025.

If Harris wins, she could keep Director Thompson on through the end of her term in 2027 or replace her, but it is unlikely that Harris would move aggressively to unwind the conservatorship.

The bottom line: In either scenario, we expect most of the GSE action to be via the regulatory process rather than a wholesale legislative reform. While legislation to remake the GSEs has gained some traction in past Congresses, the outsized role of the agencies coupled with the importance of housing makes any lawmaking effort politically difficult.

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