Recent/upcoming developments… Over the last week, President Trump has made two notable statements regarding a GSE exit from conservatorship.  Last week, he posted that he is giving “serious consideration to bringing Fannie Mae and Freddie Mac public.”  This week, he posted that the government “will keep its implicit guarantees.”  Separately, Secretary Bessent reiterated prior comments that his priority for GSE privatization is that it does not cause mortgage spreads to widen.

Our outlook… While Trump’s call for taking the GSEs public is not incremental to the intent he’s previously expressed, the visibility and specificity of his comment is notable.  It is fairly clear that he was compelled to post this statement last week not because of a shift in timing on the administration’s plans for an exit, but because he was trying to send assurance to Republican fiscal hawks that he has various ways to generate revenue/budget savings via executive action that will offset the deficit increases in the “reconciliation” (tax/spending) bill Congress is considering.  His subsequent comment about sustaining an implicit guarantee is new and was presumably intended to provide an assurance to the market about government support for the GSEs in the wake of his post last week.  Bessent has indicated that he doesn’t plan to move forward on a GSE exit until after work wraps up on the reconciliation bill.  This is consistent with our view that the probability of action to facilitate an exit is low this year, while Trump’s comments marginally increase the probability of an exit occurring during his term to 55-60% (from our prior 40-45%).  Our expectation for an exit remains depressed by the resistance to it by virtually all housing/mortgage finance industry stakeholders, and the difficulty that exists in addressing certain issues, particularly the government’s large liquidation preference.

* Many of the policy requirements for an exit upon which the mortgage market will likely insist are politically achievable, though will require careful and time consuming consideration by the administration.  These include making the PSPA lines of credit available post-exit (an essential requirement, but one on which there is some question of legal authority), GSE capital/liquidity requirements are maintained at a high-level, bank regulators and rating agencies maintain a status-quo view on GSE debt/MBS, and assurance that the government is sensitive to market conditions (which is what Trump’s comment this week was presumably intended to achieve).

* The issue that is likely going to be most difficult to address is the fact that the value of the government’s liquidation preference is in excess of the likely value of the GSEs.  In order for investors to capture value via an exit, the government will need to write off/down the liquidation preference.  This would be politically controversial given that it will mean investors will capture value otherwise owed to taxpayers.  Trump will presumably be able to justify doing so by pointing to prior value captured by taxpayers and the headline value of an IPO.

* There is no effort on the part of the housing/mortgage finance industry to encourage an exit from conservatorship, nor has there been for the last decade.  The only advocates for an exit have been GSE shareholders.  The primary message from the housing/mortgage finance industry is that any exit must be approached with caution.  This cautious sentiment has been echoed by Republicans in Congress who’ve said a transition out of conservatorship needs to be handled carefully (e.g., Sens. Kennedy (R-LA), Rounds (R-KS), Hawley (R-MO), Cramer (R-ND)).  Key players such as the Mortgage Bankers Association (MBA) have recently (and others such as the National Association of Realtors have previously) said that an explicit government guarantee on MBS is a requirement of any post-conservatorship arrangement, something that can only be provided by Congress, which is unlikely to occur.  The Structured Finance Association (SFA), which represents mortgage market participants, has said rates will rise without an explicit guarantee.  These sentiments suggest that the Trump administration will need convince the housing/mortgage finance industry that making the PSPA lines of credit available and assurances of implicit government support is sufficient to satisfy their concerns and thereby fulfill Bessent’s requirement that an exit not cause rates to rise.

* Our expectation is that we may see the administration take some preparatory policy steps towards an exit during the latter part of this year, including issuance of a set of principles/plan of some sort, which will begin the process of setting expectations with the housing/mortgage finance industry and Congressional Republicans.  This process could continue into next year.  We don’t expect the administration to initiate the process towards an exit (e.g., formally change the PSPAs to be available post-conservatorship, specify parameters/dates for an IPO) until the latter part of next year, with an exit/IPO not taking place until 2027.  The governments warrants expire in 2028 (though this could be extended), but in any case, Trump will likely want to be able to complete an exit/IPO by the time he leaves office in January 2029.

Watch for these developments… It’s possible that we see additional expressions of intent from the Trump administration this year, possibly including issuance of an Executive Order (EO) that calls for an exit, something about which there has been ongoing speculation.  Issuance of an EO would only be a marginally incremental development, given Trump’s two posts over the last week.  It would be more incremental if it specifies a timeline or specifies any policy parameters for an exit.  A more substantial indicator that the administration is moving notably closer to an exit would be if Treasury/FHFA was to take the sort of substantive preparatory steps that former FHFA Director Calabria took in Trump’s first term (i.e., increases in GSE capital requirements, constraints on the types of lending the GSEs could support, hiring of bankers).  The ultimate indicator that an exit is imminent will be specific expressions of satisfaction with the administration’s plan by key housing/mortgage finance industry stakeholder groups and their Republican allies in Congress (e.g., Senate Banking Committee Chair Scott (R-SC), House Financial Services Committee Chair Hill (R-KY)).