Revising the Preferred Stock Purchase Agreements of Fannie Mae and Freddie Mac May Be the Biggest GSE Bailout Yet

The Trump Administration appears ready to end the nearly 11 years of conservatorship of America’s largest government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac. However, under the current terms of the government conservatorship, these GSEs would have to raise $200 billion they owe to the Treasury and an additional $200 billion as a capital buffer. Special interest groups are lobbying to alter the conservatorship agreements to lessen this financial burden. Fortunately, another taxpayer bailout is not the only path to ending the conservatorship. The Federal Housing Finance Agency (FHFA) has the authority to place the GSEs into receivership and proceed with a structured liquidation of their assets. Although the FHFA cannot revoke the GSEs’ charters without congressional approval, it can issue new charters to new companies—with higher capital requirements, no Treasury credit lines, and no taxpayer backing. This approach will reduce taxpayer risk and gradually restore housing affordability.