Rumors and facts have been blended into a sometimes toxic brew in Washington, DC this week. In this environment, where the facts on the ground change by the hour, it’s more important than ever to stay focused on what we actually know, and confirm that it’s true now, and will still be true tomorrow. The legendary journalist and broadcaster Dan Rather is reported to have said there are only three responses to questions from the press: (1) “I know and will tell you”; (2) “I know and I can’t tell you”; and (3) “I don’t know.” Consistent with Rather’s direction and hoping to avoid jumping into the rampant rumor mill, I’ll be clear about what I know and what I don’t but believe to be true about the dramatic turn of events at Fannie Mae, Freddie Mac (the Enterprises) and their regulator, the Federal Housing Finance Agency (FHFA). In a time of so much uncertainty and change – often revolutionary change – this discipline will serve us all well.
At the same time, we need to rapidly respond to real changes that could create quantifiably negative impact on markets and people, like last weekend’s assault on the CDFI Fund. As a result of the advocacy of dozens of housing groups, a Friday night Executive Order was clarified by Treasury Secretary Scott Bessent, when he said, “This Administration recognizes the important role that the CDFI Fund and CDFIs play in expanding access to capital and providing technical assistance to communities across the United States. CDFIs are a key component of President Trump’s commitment to supporting Main Street America in the pursuit of job growth, wealth creation, and prosperity. As required by President Trump’s March 14, 2025, Executive Order, the Treasury Department will provide a response to the Director of the OMB on this matter and looks forward to future engagement with CDFIs and other stakeholders to strengthen the impact of these statutory programs and incentivize economic opportunities for all Americans.” This followed a strong endorsement by the bipartisan Senate Community Finance Coalition. Ultimately, the CDFI Fund ended up stronger and more secure than it has been in months. We know from experience, however, that things can change very fast.
This has been a week of dramatic change at Fannie Mae and Freddie Mac under the leadership of their new regulator, Bill Pulte, the Director of FHFA, who was sworn in on March 14, 2025. This includes the replacement of 14 members of the two companies Boards of Directors, the replacement of the CEO of Freddie Mac, and the firing of the two senior officers responsible for DEI initiatives, as well as the Freddie Mac head of Human Resources. The Chief Operating Officer and head of Human Resources at FHFA were also fired, and dozens of FHFA employees were put on Administrative Leave and escorted from the building. And on the podcast All In, Treasury Secretary Scott Bessent hinted at the potential end-state for Fannie Mae and Freddie Mac’s conservatorships in a way that has not previously been suggested. That’s a lot, so let’s look at these developments individually.
On Monday, May 17, Pulte fired eight members of the Fannie Mae Board of Directors, and six members of the Freddie Mac Board of Directors, replacing the Board Chairs with himself leading both enterprises. Pulte also appointed his general counsel, Clinton Jones, to the Board as well. Jones is a highly respected regulator and policy expert. His appointment was reassuring to many who expressed concern over which senior FHFA staff would be retained. While on its face, this is an unprecedented change in the corporate governance of the Enterprises (in fact, I’m not aware of another instance of a regulator assuming the chairmanship of a regulated board), the FHFA Director has been the defacto Board chair of both companies since they were put into conservatorship in 2008.
Over the past 16 years, FHFA has had operational control on such a micro level, that lenders have routinely complained about being unable to get guidance from the two Enterprises on the most basic issues, routinely being told, “I have to wait for FHFA approval.” While this has not interfered with the Enterprises becoming profitable and beginning to rebuild capital, it has made it nearly impossible for them to innovate or scale innovations of their lender customers.
If you are wondering how much authority the Director has had, check out this statement in the 2020 10K report filed with the SEC:
“Our directors serve on behalf of the conservator and exercise their authority as directed by and with the approval, where required, of the conservator. Our directors do not have any duties to any person or entity except to the conservator. Accordingly, our directors are not obligated to consider the interests of the company, the holders of our equity or debt securities or the holders of Fannie Mae MBS unless specifically directed to do so by the conservator. In addition, the conservator directed the Board to consult with and obtain the approval of the conservator before taking action in specified areas…”
I believe the intention of FHFA is to ultimately move beyond this level of micromanagement and allow the Enterprises to function more like businesses and less like appendages of the government. Time will tell how much flexibility Enterprise staff have in their interaction with lenders. But it is clear to me that for them to move forward, Pulte’s efforts to take over the operations of the Enterprises is an important first step.
Today, the two companies are led by highly experienced CEOs who, at least for now, have the confidence of the FHFA Director. Fannie Mae is led by Priscilla Almodovar, who was appointed CEO in 2022. She has more than 30 years of leadership experience in finance, real estate, and banking, including senior positions at JPMorganChase. Mike Hutchins, Freddie Mac’s president, was appointed Interim CEO to replace Diana Reid. Hutchins has deep experience in the mortgage finance industry going back to 1986, when he helped Lou Ranieri invent the Mortgage Backed Security (for a precise and brief albeit coarse explanation of Ranieri’s role, see this scene from The Big Short).
Washington was awash in rumors of draconian changes that weren’t remotely accurate. Some said at least 20 percent of the employees at Fannie Mae and Freddie Mac would be fired. Others suggested that the two companies would be merged (they will not). Several reports suggested that Freddie Mac’s Chief Operating Officer (COO) was fired. Freddie doesn’t have a COO.
One of the most intriguing comments of the week came from Secretary Bessent, who is likely to oversee any release of the Enterprises from conservatorship. Bessent appeared on the All In Podcast on Wednesday, where he discussed Trump administration economic policy for over an hour. It’s the most candid conversation with a Treasury Secretary I’ve ever heard, publicly or in private. Bessent discussed the status of Fannie Mae and Freddie Mac, the insurance crisis, and zoning. He also announced that President Trump will be appointing an affordability czar at the White House. I have no idea what they intend to do with that position, but I’m looking forward to finding out. NHC led a group of 40 housing organizations in asking President Joe Biden to appoint a President’s Council on Housing Affordability three years ago. The letter never received a response.
In an extensive discussion of President Trump’s plan to create a sovereign wealth fund, Bessent suggested that it could invest in the stock warrants that it holds in Fannie Mae and Freddie Mac. CBO scored their value at $270 billion, though the value in an IPO could be much greater, especially if it some significant amount was to be held in a U.S. sovereign wealth fund. Notably, Bessent was dismissive of CBO accounting elsewhere in the podcast.
The notion of releasing Fannie Mae and Freddie Mac from conservatorship and placing some significant amount of their stock in a U.S. sovereign wealth fund is nothing short of revolutionary. While much more research needs to be done, it is possible that this structure, never before considered by policymakers, could give the Enterprises AAA bond and security treatment without the need for a full faith and credit guarantee. If this idea proves to be legally realistic, without unintended consequences that could destabilize mortgage markets, it could result in the Enterprises being safer, more sound and better capitalized than at any time in their history.
You can read more about how this fascinating concept might work in an op-ed in the Financial Times by Ronald Kruszewski, the CEO of Stifel, where he makes the case that transferring warrants into U.S. sovereign wealth fund. The income generated by the dividends from the investment could also fund future investments in housing.
Unfortunately, the most important thing we don’t know is what will happen tomorrow, or the day after, and how that will change what we know today. We’ve never seen anything like this in Washington since the earliest days of the Roosevelt presidency. While history has treated this period in glowing terms, it can’t be understated how disruptive it was at the time. NHC was intimately involved and wrote the first peacetime Federal investment in housing in U.S. history in the National Industrial Recovery Act of 1933. We literally invented public housing.
At the time, however, it was seen as a socialist plot. They weren’t entirely wrong. At our first policy conference at the Willard Hotel the following year, Harold Ickes, the architect of the New Deal, joined Eleanor Roosevelt, who keynoted the conference. During his remarks, he lauded the important work on public housing being accomplished by – wait for it – Joseph Stalin!
The point is, we are in the midst of a revolution and revolutions are messy, as Maximilien Robespierre learned the hard way. Where this one will lead is anyone’s guess. My prayer is that however messy this one is, it ends well for housing, housers and the people we serve.