Democrats Seek Transparency Into Fannie, Freddie ‘Reprivatization’

The Trump administration is assuring industry groups like the National Association of Realtors and Mortgage Bankers Association that its “North Star” in reprivatizing Fannie Mae and Freddie Mac is not to disrupt the housing finance system and send mortgage rates higher.

But administration officials owe Congress and the American people more transparency into its plans, Massachusetts Sen. Elizabeth Warren complained in a letter to Treasury Secretary Scott Bessent this week.

Although Warren is the ranking Democrat on the Senate Banking Committee, she told Bessent that much of what she knows about the Trump administration’s plans for the mortgage giants comes from sources like the president’s posts on Truth Social or news media appearances by Trump administration officials.

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Shares in Fannie and Freddie soared in May when Trump posted on Truth Social that he was “giving very serious consideration” to bringing the companies public, and that he would be making “a decision in the near future” after consulting with Bessent, Secretary of Commerce Howard Lutnick, and Federal Housing Finance Agency Director Bill Pulte.

Warren said Democrats have sent “multiple inquiries” to the FHFA — Fannie and Freddie’s federal regulator — about the reprivatization process, including an Aug. 29 letter to Pulte asking if there’s been any analysis of how the plan being considered might affect mortgage rates.

But so far the FHFA has been unresponsive to Democrats’ requests for more detailed information — and Warren said it’s unclear who is even leading the process.

“Despite the enormous implications for the housing market and taxpayer interest, this reported effort raises questions about which agency will lead the reprivatization process, what the goals of reported reprivatization are, and how the American people’s interests will be protected,” Warren wrote Bessent on Sept. 24. “Given the state of the nation’s housing crisis, it is prudent to have these discussions outside of the shadows and involve Congress, as the body that is ultimately responsible for implementing necessary changes” to laws governing Fannie and Freddie.

Art of the fuzzy deal

Fannie and Freddie have been in government conservatorship since 2008, when the government took a majority stake in the companies. But private investors like Pershing Square billionaire Bill Ackman — who still own shares in the companies that trade on an over-the-counter market — are hoping they’ll come out ahead in the deal being cooked up by the Trump administration.

Bessent, Lutnick and Pulte have all dropped hints on cable news programs about how a secondary offering might play out, suggesting that the Trump administration might keep Fannie and Freddie in conservatorship, but sell 5 to 15 percent of the government’s stake in the companies.

Rather than reprivatizating Fannie and Freddie, the government might sweep its ownership stake in the companies into a sovereign wealth fund, Trump administration officials have suggested.

In an Aug. 9 Truth Social post, Trump suggested that an IPO could occur as soon as November, and that Fannie and Freddie might even be merged into a single company, “The Great American Mortgage Corporation.”

Fannie Mae was created as a government agency in 1938, and reorganized in 1968 as a publicly-traded, shareholder owned company. Freddie Mac was formed in 1970 to compete with it.

Mortgage industry groups like the Mortgage Bankers Association and Community Home Lenders of America say competition between Fannie and Freddie is healthy and should be preserved.

Trump’s timeline also creates a sense of urgency for Warren, who posed nine questions to Bessent and asked that he respond by Oct. 8.

“It is imperative that an impact assessment of reprivatization be conducted before any plan is established,” Warren wrote. “In addition to economic analyses, any assessment should include robust public input, assessing the role of [Fannie Mae and Freddie Mac] in today’s market, and carefully accounting for any implications of reprivatization of [the companies] on the mortgage market and broader economy.”

Guarantees keep mortgage rates low

Fannie and Freddie don’t make loans themselves, but guarantee payments to investors in mortgage-backed securities (MBS) that are the ultimate source of funding for most home loans. Those guarantees help keep mortgage rates low, since MBS investors can be confident they’ll get paid even if homeowners default.

But if MBS investors lose confidence in Fannie and Freddie’s guarantees, they might demand higher yields that would be passed on to homebuyers in the form of higher mortgage rates. On the flip side, if Fannie and Freddie are reprivatized and get into trouble again, taxpayers might be on the hook again if the government had to bail them out.

As long as the government owns Fannie and Freddie and the companies remain under conservatorship, the government is providing a “technical guarantee” to investors, said PJ Tabit, a policy analyst with The Conference Board’s public policy center, the Committee for Economic Development.

Trump himself has said that the U.S. government intends to maintain unstated, “implicit” guarantees of Fannie and Freddie’s obligations.

Another option would be for Congress to provide some clarity through legislation “that actually specifies, ‘Here are the conditions under which there is a guarantee,’ and where there’s not,” Tabit told Inman.

“Obviously you could sell some percentage of the shares and still keep (Fannie and Freddie] under conservatorship,” Tabit said. “Then there continues to be a question of whether the government would maintain some sort of guarantee. The guarantee is really fundamental to the question of what impact [changes to Fannie and Freddie] have on rates.”

It might take some for Congress to pass legislation, “and I think those that are advocating for a quicker path, probably don’t want to go a legislative route,” Tabit said.

Meetings with stakeholders

One area of interest to Warren are recent roundtable meetings that the Treasury Department has held with the National Association of Realtors (NAR) and the Mortgage Bankers Association (MBA).

Both NAR and the MBA have proposed a “utility-style” model for Fannie and Freddie, in which the government would provide an explicit guarantee to MBS investors, while limiting the companies’ risks and profits.

MBA President and CEO Bob Broeksmit participated in a Sept. 8 Treasury Department roundtable discussion on the futures of Fannie and Freddie.

“In what MBA views as a positive step, [the meeting] was largely a listening session for senior Treasury staff working on this issue,” the MBA reported in a bulletin to members. “It was clear from the line of questions that Treasury — with tax and tariff issues now largely behind them — is now fully engaged in its role as both the owner of 80 percent of [Fannie and Freddie] and as the steward of the U.S. fixed income markets.”

In addition to a secondary offering, Treasury officials appear “to be equally focused on the complex market implications and policy issues that come with charting a path to ending the [Fannie and Freddie’s} conservatorship,” the MBA reported.

Treasury staff reiterated throughout the meeting that Bessent’s “North Star” is that any changes to the housing finance system “will be undertaken in an ‘informed, careful and calibrated’ approach to ensure there is no disruption to the system or upward pressure on mortgage rates.”

The MBA and other trade associations attended a similar FHFA roundtable convened by Pulte the next day, which “covered many of the same topics as the Treasury meeting,” the MBA reported.

NAR senior policy representative Ken Fears said he and NAR Chief Advocacy Officer Shannon McGahan attended both meetings, stressing “the importance of the 30-year fixed-rate mortgage as well as maintaining the availability of affordable mortgages in all markets,” Fears said in a member bulletin.

NAR advocated to Trump administration officials that they transition Fannie and Freddie “to private market utilities to ensure they continue to support the market as they have under conservatorship.”

The Trump administration has also reportedly consulted with the CEOs of Goldman Sachs, JPMorgan Chase, Bank of America, and Citigroup about a Fannie and Freddie offering.

Lutnick told CNBC on Sept. 11 that while an offering of Fannie and Freddie shares could take place this year, the government would not be looking to sell much of its stake.

Instead, a secondary offering would serve as a useful “mark to market” — demonstrating how much shares in the companies are worth to private investors.

“What we want to do is keep the price of a home mortgage as low as mathematically possible,” Lutnick said. The president wants rates lower. He wants home ownership to be more affordable, and making sure we have home ownership with the lowest mortgage rates possible means we have to make sure [Fannie and Freddie] are powerful, capable and strong.”

“What we know is that there are 10 things that are important, but they’re actually easy to remember,” former Fannie Mae CEO Hugh Frater said at a Sept. 24 panel discussion hosted by the Bipartisan Policy Center. “One through seven is, ‘What does President Trump want to do?’ And then eight through 10 is, ‘What’s the effect on mortgage rates whenever he does it?’ ”

Political infighting

Warren asked Bessent to provide “dates and names of attendees of any meetings, including stakeholders, as well as copies of any and all written communications” between the Treasury Department, FHFA, and other agencies regarding Fannie and Freddie since Jan. 20.

“Your roundtables are at least indicative that someone in this administration is beginning to engage in these questions,” about potential impacts on the mortgage market and broader economy, Warren wrote to Bessent.

Warren said she has concluded Pulte “may have no information, insight, or answers on the topic, in part due to his focus on ousting members of the Federal Reserve Board of Governors and certain Democratic leaders.”

That’s a swipe at criminal referrals Pulte has sent to the Justice Department recommending that New York Attorney General Letitia James, Democratic Sen. Adam Schiff and Federal Reserve Governor Lisa Cook be investigated for mortgage fraud. No charges have been filed, and all three deny wrongdoing, saying they are targets of political retribution.

California Democratic Rep. Dave Min, a former SEC prosecutor who serves on the House Oversight Committee, went a step further this week, asking the FHFA’s Office of the Inspector General to open an investigation into whether Pulte violated any laws “by misappropriating and misusing non-public mortgage data” in sending the criminal referrals.

The FHFA did not respond to a request for comment from Inman on Warren and Min’s allegations about Pulte.

Warren may also be hoping that Bessent will be more receptive to her queries, given reports that the Treasury Secretary doesn’t always see eye-to-eye with Pulte and Lutnick.

Bessent and Pulte have “clashed in something of a turf war over the mortgage giants as well as other economic matters,” Politco reported on Sept. 8, citing four anonymous Trump insiders.

Bessent and Lutnick both wanted to be Treasury Secretary, and “have had a rocky relationship since the transition,” Politico reported.

At a private dinner on Sept. 3, Bessent reportedly accused Pulte of talking about him behind his back with President Trump, and threatened to punch him in the face, Politico reported.

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