Industry Update
January 9, 2025

Source: Globest.com

Sandra Thompson, director of the Federal Housing Finance Agency, is set to step down on January 19, according to an agency spokesperson. This announcement comes at a crucial time for the US housing market, as the FHFA oversees two key players: Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank system.

Had Thompson chosen to remain in her position, President-elect Donald Trump would have had the authority to swiftly remove her following his January 20 inauguration, thanks to a recent US Supreme Court decision that eased the process of removing the FHFA director.

The timing of Thompson’s resignation coincides with growing market anticipation that the Trump administration may move to release Fannie Mae and Freddie Mac from conservatorship. (The federal government took control of the companies during the 2008 financial crisis, providing a bailout of approximately $187.5 billion).

This prospect of their release has already had a significant impact on the market, with Fannie Mae’s stock soaring 258% since Trump’s election in November. This surge is largely attributed to the advocacy of Bill Ackman, founder of Pershing Square Capital Management, who has argued that the Trump team’s commitment to reducing government involvement will help complete the process of releasing Fannie and Freddie from conservatorship.

Earlier this month, the agencies overseeing Fannie Mae and Freddie Mac unveiled a roadmap for releasing the pair from government supervision. This announcement sent the entity’s common stock to its highest levels since 2019. The new guidelines reinstate the US Treasury’s authority to approve any release plan, aiming to ensure an “orderly” process.

However, the process of releasing Fannie Mae and Freddie Mac from government control is likely to be complex and time-consuming. Bloomberg Intelligence analyst Ben Elliott told Bloomberg that a government exit is “at best a 2026-27 prospect”. The complexity of this undertaking and concerns about potential disruptions to the housing market had previously slowed efforts during Trump’s first administration.

The potential release of Fannie Mae and Freddie Mac from conservatorship has significant financial implications that go beyond the likely change in mission for these entities. In exchange for its financial injection in 2008, the Treasury received senior preferred shares in Fannie and Freddie. The recent agreement does not affect the GSEs’ capital retention or dividend payments under these senior preferred shares.

Investors have long battled over the future of these entities. During the financial crisis, holders of Fannie and Freddie’s preferred shares were adversely affected when the entities ceased dividend payments. The prospect of releasing the companies from conservatorship has reignited investor interest, with some, likeAckman, recommending buying the entities’ common stock.