What Pennymac wants prioritized in GSE reform

Pennymac outlined what it considers key priorities for a healthy housing market as the Trump administration weighs possible near-term reforms to the government-sponsored enterprises.

"The potential for structural action at the GSEs is more elevated now than at any point since the conservatorships began in 2008," Pennymac's public policy and government affairs experts wrote in a note to its third-party originators amid reports that a new stock offering could happen as soon as late 2025.

"The GSEs in aggregate have $166 billion in capital on their balance sheets, which makes taking structural action far easier than it was in the first Trump administration," Pennymac's Isaac Boltansky, Jason Piatt and Parker Bell also noted.

Protecting implicit guarantee, ties to Treasury and more

Boltansky said the company takes comfort in stated guardrails the administration has, which are in line with some of its own priorities around "do no harm" approach to housing, which makes up a significant share of gross domestic product.

"There seems to be a cognizance in the administration that housing is almost 20% of GDP, and they don't want to break it. So I think that it's fair for us to assume here that no matter what the exact next step looks like, I think it's the base case," Boltansky said in an interview.

Officials have said they plan to avoid upward pressure on mortgage rates with President Trump pledging to preserve an implicit guarantee to that end. Pennymac would ideally like to see one that's explicit but considers it unlikely in the near-term given congress would be needed.

In light of this, what Pennymac calls for is a "defined guarantee" in which policymakers preserve Treasury ties established in conservatorship under Fannie and Freddie's preferred stock purchase agreements with the department.

"We believe policymakers should ensure that the existing PSPA lines are retained in any administrative reform scenario," Pennymac said in its report.

Trump administration officials have said they've been considering a plan that would preserve government ties.

Other priorities in reform Pennymac calls for include "brightline business limitations" that keep the GSEs contained to a secondary market role, and maintaining sufficient Federal Housing Finance Agency's oversight powers to manage risks.

Identifying key questions to answer in reform

The report Pennymac distributed to its third-party originators also singles out key aspects of the GSEs operations that may have to be accounted for in reform to protect the market.

In addition to ensuring a sufficient backstop and FHFA authorities are in place, how the Treasury would handle its senior preferred shares, whether the return on equity is sufficient for investors, and how the common securitization platform would operate are key considerations in reform.

Whether and how the FHFA capital rule should be changed in addition to how regulators more broadly treat mortgage-backed securities are other key questions.