Treasury Secretary Bessent’s cautious remarks about the prospect for GSE reform heighten industry skepticism about the release of Fannie Mae and Freddie Mac from conservatorship.
The Federal Housing Finance Agency in recent years has done a better job than Ginnie Mae in interagency planning for a hypothetical nonbank crisis, according to the Government Accountability Office.
Obstacles like how to deal with the implicit guarantee and excessively high capital requirements make it unlikely that the GSEs will exit conservatorship under Trump, though the chances are higher than before his election.
The debate over how to end the conservatorships of Fannie Mae and Freddie Mac hinges on whether rating services would downgrade the GSEs if they exit without an explicit government guarantee.
Critics argue that, if Fannie Mae and Freddie Mac are released from conservatorship without an explicit government guarantee, MBS investors will demand wider spreads to cover the added credit risk.
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