Though President Donald Trump has made it clear that Fannie Mae and Freddie Mac will exit conservatorship, he announced that when the government-sponsored entities (GSEs) go public, the U.S. government will maintain its implicit guarantees on the two agencies.

“I am working on taking these amazing companies public, but I want to be clear, the U.S. Government will keep its implicit guarantees, and I will stay strong in my position on overseeing them as president,” Trump wrote in a Truth Social post. “These agencies are now doing very well…”

Following Trump’s announcement Tuesday evening, Fannie and Freddie shares surged, with Fannie’s stock climbing 3.7% to $10.92 and Freddie’s up 7% to $8.13. 

According to an Urban Institute report from earlier this year, if the GSEs were removed from conservatorship, the Trump administration would be “under intense pressure to say and do everything it can to disabuse everyone of the assumption that, in releasing the GSEs, the administration is recreating the very implicit guarantee that conservatives and others believe pushed the GSEs into conservatorship in the first place.”

A timeline for conservatorship exit is unclear. Just this month, mortgage leaders at the Mortgage Bankers Association’s Secondary & Capital Markets conference said that it was their understanding that ending the conservatorship was not an immediate priority for the administration, and noted significant unanswered questions about the process, including the possibility of either an explicit or implicit guarantee.

Experts described a scenario where the GSEs exited conservatorship without a guarantee as disruptive to markets.

Former Freddie Mac CEO Don Layton, during a talk last month, said it was “highly unlikely” for Fannie and Freddie to exit in “the next year or two.” He added that, even with a “fully responsible exit,” it’s not clear how it will look for the companies post-exit.

What is an implicit guarantee, and what does it mean for the GSEs?

An implicit guarantee, as defined by Urban Institute, is the “widespread assumption” that the government would “bail out their shareholders and other creditors should the GSEs exhaust” its funds. 

When Fannie and Freddie entered conservatorship, the implicit guarantee became explicit.

According to the report, the implicit guarantee set up the GSEs as a little-to-no-risk investment, gave them a credit rating consistent with the government’s and allowed them to borrow at nearly a risk-free rate. 

But more important than posing little risk was the unlimited backing of the U.S. government, “which allowed the Fed and rating agencies to treat them as if they were part of the government.”

“This is a vital distinction, as the Trump administration will not be able to replace the government’s implicit guarantee with, say, more GSE capital or an even larger credit line and expect the same treatment from the Fed and each of the rating agencies,” read the report.

Pulte

At a Mortgage Bankers Association conference last week, Bill Pulte, director of the Federal Housing Finance Agency (FHFA), focused on privatization, emphasizing the number of conversations he and other heads of housing agencies have had. 

Ultimately, though, the decision to privatize Fannie and Freddie will be on Trump, he said.

“This is a decision for the president of the United States, and we have a president who is a deal maker…and I believe that whatever way the decision goes, with regard to what the president wants us to do, I believe will be done—you know, in the best interest of the American people, but ultimately that will be the boss’s decision.”
Following Trump’s post, Pulte expressed his support for the president in a post on X (formerly Twitter). “Thank goodness we have a President who cares and loves Fannie Mae and Freddie Mac!”

Much like Trump has done recently, Pulte also said, in an X post, that Federal Reserve Chair Jerome Powell should lower rates. 

“To help reverse the damage Biden’s inflation did on the mortgage market, Jerome Powell should lower interest rates, now,” Pulte wrote.

• 
• 
• 
•