Bessent puts GSE exit on 2027-2028 agenda, boosting shares

• Key Insight: Uncover how Treasury Secretary Scott Bessent plans to tackle mortgage enterprise ownership.
• What's at Stake: Whether officials take actions that could benefit Fannie Mae and Freddie Mac investors.
• Expert Quote: "[The] FHFA should eventually have to explain why the extraordinary powers of a conservator should continue," Thomas Kinsley, director of financial services policy at AAF.

Treasury Secretary Scott Bessent said Tuesday that officials could resume plans to remove two influential government-sponsored enterprises in the mortgage market from conservatorship within the next two years, boosting the price of their shares.
"I would imagine that the next year, the year after, we will be tackling the ownership structure," Bessent told the 2Way media platform in an interview that drove the enterprises' respective stock prices up 13% on Tuesday.

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Fannie Mae's stock was up another 2.52% in early afternoon trading on Wednesday at $3.82 per share. Freddie Mac's stock was 3.55% higher on the day at $3.50 per share around that same time.

The gains occurred even though Bessent indicated that there would be no near-term moves to this end because narrowing spreads, which otherwise could widen and put upward pressure on home loan rates, will remain the priority for now.

"That's our North Star," he said, noting that it's unclear whether the interests of GSE investors and homeowners are aligned when it comes to moves toward a conservatorship exit that could involve the sale of a minority stake in the enterprises.

That goal could help stabilize what's been upward pressure on rates for mortgage lenders that sell loans to the GSEs. Their oversight agency, the Federal Housing Finance Agency, has directed them to help stop mortgage rates from getting too high via retained portfolio growth.

But the FHFA and Treasury also are facing some pressure not to completely abandon plans to remove the enterprises from conservatorship, as a report the American Action Forum released on Tuesday advocated. 

Why pressure to end conservatorship is growing

"If conservatorship is going to remain the answer for the foreseeable future, FHFA should eventually have to explain why the extraordinary powers of a conservator should continue," Thomas Kinsley, director of financial services policy at AAF, wrote in the report. 

Certain investors also have legally challenged FHFA's authority in court, with a possible payouton track to occur during the time period Bessent mentions for resuming enterprise ownership discussions.

Those investors have cited state contract law that upholds shareholder rights in challenging a temporary GSE profit sweep the government engaged in when it took the enterprises into conservatorship during 2008's Great Financial Crisis. 

While the courts have ruled in favor of investors to date, the FHFA still has a window in which it could petition the Supreme Court to hear the case based on assertions that a federal statute and the court decision in Collins v. Yellen gave it a right to the net worth sweep.

If FHFA does not petition the Supreme Court, the estimated $1 billion payout to current enterprise investors other than Fannie Mae common shareholders could occur by 2028. 

That year also could be significant because warrants the Treasury holds in the GSEs are on track for an extendable expiration on Sept. 7, 2028. The Trump administration ends Jan. 20, 2029.

Midterm elections in which Republicans are set to face challenges to Congressional control could play a role in how much political will there is to engage in a GSE stock offering or other move away from conservatorship.