GSEs' conservatorship exit may hinge on the next election

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The government-sponsored enterprises will likely leave conservatorship in the next couple years if President Trump stays in office, but not necessarily if Joe Biden wins the election.

"Listening to the folks who are likely guiding policy for candidate Biden, I wouldn't expect to stay on the road to exit conservatorship if Biden wins," Mike Fratantoni, chief economist of the Mortgage Bankers Association, said in response to a question at a virtual event organized by Moody's Investors Service.

"If the current administration stays in and [Federal Housing Finance Agency Director Mark] Calabria is still there, it's a 2021 to 2022 kind of a time frame, but there are a lot of variables," he added.

Fratantoni described the capital rule the FHFA reproposed last month as a key step.

"Once that's in place then they have a target, then they know how much capital they have to raise to leave conservatorship," he said.

But he noted that because it is a very complicated rule to work through, the process of finalizing it will likely be time-consuming.

While the plan for the GSEs to rebuild capital, leave conservatorship and become quasi-public companies again is often referred to as GSE reform, that is somewhat of a misnomer, Fratantoni said.

"That's not a whole lot of reform. That's them going back to their prior status," he said.

Whatever path Fannie Mae and Freddie Mac take, the MBA would like to see the GSEs preserve many of the changes they made while in government conservatorship.

"From an MBA perspective, we think over the last decade or so there have been a lot of improvements to the way the GSEs conducted business and we want those locked in," Fratantoni said.

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