March 21, 2025
Move Fast and Break the Mortgage Market
Bill Pulte, FHFA Director and Chair of Fannie Mae & Freddie Mac
I was quoted in the American Prospect’s story, Move Fast and Break the Mortgage Market. It reads, in part,
This week, the Donald Trump–appointed chief regulator for the two quasi-governmental companies that own or control about half of the residential housing market anointed himself the board chair of both those companies. This maneuver could signal a host of shenanigans: the culmination of a 17-year hedge fund get-rich-quick scheme, a balance-sheet fiction to justify tax cuts, a new favor factory for apartment developers with ties to the president, a data transfer so Elon Musk’s everything app can learn how to sell mortgages, or something equally problematic.
But what gives former board members, market observers, and officials at the regulator greater concern is the distinct possibility that mucking around with the $7.7 trillion secondary mortgage market could lead to breaking it.
If that happens, homebuyers may not be able to get mortgages, homebuilders may be reluctant to break ground, and uncertainty would abound in a market that has brought down the economy on more than one occasion in U.S. history, most recently in 2008. “It could freeze sales, freeze refinances, stop people from forming households, cause people to be afraid of moving, freeze up developers of housing and the secondary market,” said David Reiss, a professor at Cornell Law School.
Multifamily Glad-Handing
The GSEs have a pretty sober business on the single-family side, and since the housing collapse really originated there, a lot of work was done to clean up that part of the business. But Fannie and Freddie also make loans in the multifamily market to support building of apartments and condos. A former official with one of the GSEs told me that business is a little looser, with ways to enhance those loans.
This president, of course, is a multifamily real estate developer himself, who has friends in multifamily real estate development. Hamara, one of the new board members, is a vice president at Tri Pointe Homes, a major homebuilder. You could imagine these relationships leading to the GSEs pushing risk limits, loosening credit standards, or raising loan-to-value ratios for favored borrowers. There is a secret mortgage blacklist at Fannie Mae for condos without enough property insurance or in need of repairs; controlling the board could make that blacklist go away, at least for certain developers.
This kind of setup resembles the opportunity zones that were a feature of the 2017 Trump tax cuts. They gave significant tax breaks to investors in certain communities deemed in need of development. Trump administration officials credit opportunity zones with increasing housing construction, but critics argue that the investments were rife with corruption and favor-trading.
That could also be the case here: New criteria guiding the new boards might lead to more multifamily housing, but with uneven results, favors to friends, and idiosyncratic deals that would be more about boosting allies than building housing. And as Calabria has pointed out, Fannie and Freddie are likely under Trump to cancel affordable-housing initiatives, meaning that sweetheart deals might only extend to the developers, rather than the public. Plus, there is the potential for dramatic losses if lending standards erode.
Reiss, of Cornell, agreed that this was all a possibility. “If someone gets to one of the directors, and they are there not acting as a fiduciary for the company, it opens the door to political favoritism,” he said.
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What If It Breaks
Pulte is expected to force job cuts at the GSEs, which employ roughly 15,000 people. He has already been making familiar noises about DEI and remote work. One possibility on the table at the GSEs is merging Fannie and Freddie; you don’t usually have the same person chair the boards of two direct competitors. The regulatory agency is also likely to see cuts; already at FHFA, according to one source, fair lending and consumer protection groups have been put on administrative leave, along with employees at the Division of Research and Statistics.
Controlling the boards would limit dissent about these actions. But cuts in the name of efficiency could strain or even rupture the numerous functions the GSEs carry out, with consequences for the entire housing market.
Due to the conservatorship, the GSEs are limited in what they can pay their employees, which has led to a talent drain. Some systems have not been integrated, and others are not up to industry standards. Fannie and Freddie have a cautious internal culture that doesn’t move quickly. Hacking away at their already weakened structure could easily create operational harm.
But Reiss explained that nothing has to overtly break to lose the confidence of the markets; even a lack of workforce to move the paper around could create that impression, and disrupt the flow of credit. “If there is any kind of uncertainty, the spread between Fannie and Freddie securities and Treasury bonds will increase,” he said. “Investors will ask if the government will make good on Fannie and Freddie bonds. This uncertainty and direction could increase costs over time for all borrowers.”
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