Could Fannie and Freddie survive on their own?
It remains uncertain just how long it could take for that process to begin. Among the main stumbling blocks: doubts over whether Fannie and Freddie are able to stand on their own feet without government support. The FHFA says conservatorship aims to “preserve and conserve their assets and property and restore them to a sound and solvent condition so they can continue to fulfill their statutory missions,” but it’s not clear how the GSEs would fare if released from federal oversight.
“By all accounts, Fannie and Freddie are undercapitalized,” Jessica Lynch (pictured top), vice president of housing finance at the National Association of Home Builders, told Mortgage Professional America. “They don’t have enough capital right now to be sustainable as private companies.
“It would take, from what we’ve heard and what we’ve read, anywhere between two and five years so that they would have enough capital as per the Enterprise Capital Regulatory Framework, to be sustainable [as private entities].”
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— Mortgage Professional America Magazine (@MPAMagazineUS) December 17, 2024
That capital rule, implemented by former FHFA director Mark Calabria, requires Fannie and Freddie to hold approximately $300 billion in combined capital, with both permitted to retain earnings instead of sending to the US Treasury to help them amass capital.
As of Q3 2024, neither were near that target, although Fannie said it had reduced its minimum regulatory capital shortfall by $17 billion since the beginning of the year – and in September, Calabria (who left his role at the FHFA in 2021) dampened hopes of an imminent end to conservatorship.