Fannie Mae and Freddie Mac Should Stay Separate Companies: Mortgage Bankers President

Fannie Mae’s headquarters in Washington, D.C. (Andrew Harnik/Getty Images)

Key Points

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• Mortgage Bankers Association President Bob Broeksmit says Fannie Mae and Freddie Mac should remain rivals.
• Broeksmit says competition between the two expands mortgage credit access and allows varied approaches.
• Broeksmit believes a government-backed monopoly would hinder innovation and worsen service.

Fannie Mae and Freddie Mac, often spoken about in the same breath, should remain rivals in the secondary mortgage market, the head of a trade group representing mortgage bankers says.

“Competition between Fannie Mae and Freddie Mac has been central to their success in providing liquidity and stability to the mortgage market,” Mortgage Bankers Association President and CEO Bob Broeksmit wrote in a blog post this week responding to suggestions that the two might be combined.

President Donald Trump posted an image referring to “The Great American Mortgage Corporation” on his Truth Social account in August. And the trade group’s president said Obama administration officials and staff from the National Economic Council had previously proposed merging the companies into one government corporation.

Keeping the two mortgage entities separate makes for a better housing finance system, Broeksmit wrote. Competition between the two expands access to mortgage credit and allows for varied approaches to working with lenders, developing technology, and transferring credit risk, he said.

“These competitive dynamics ultimately accrue to the benefit of lenders, borrowers, and taxpayers, helping to sustain the stability and dynamism of the U.S. housing finance system,” he wrote. Creating a government-backed monopoly would hinder innovation, worsen service to market participants, and “heighten systemic risk by concentrating housing finance operations within a single entity,” he said.

The future structure of Fannie Mae and Freddie Mac, which buy, securitize, and guarantee mortgages from lenders, is a hot topic as the Trump administration mulls their future.

“For the first time since the Great Financial Crisis, the Administration appears poised to advance serious reform, and we appreciate that all ideas are being considered,” Broeksmit wrote. The companies, which are frequently referred to as government-sponsored enterprises, or GSEs, have been under a government conservatorship overseen by the Federal Housing Finance Agency since 2008.

The companies’ shares, which trade over the counter, have run up in the wake of President Donald Trump’s election. The president posted on Truth Social in May that he was “working on TAKING THESE AMAZING COMPANIES PUBLIC.” Earlier this summer, the White House invited banks to discuss ways for the government to make money from its stake in the housing finance companies.

Freddie Mac stock was up 333% year to date as of Thursday’s close. Fannie Mae shares were 367% higher, according to Dow Jones Market Data.

Deutsche Bank analyst Mark DeVries on Thursday wrote that the stocks could rise further, but said the trade is “not for the risk-averse.” The Treasury’s handling of its stake in the companies could significantly dilute the common shares, he said.

The government’s place in the future of Fannie Mae and Freddie Mac’s operations isn’t yet clear, but the president in his May social media post said “the U.S. Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President.”

Fannie Mae, Freddie Mac, the Federal Housing Finance Agency, and the Treasury didn’t respond to requests for comment.

The companies’ conservatorship has already reduced competition in the secondary mortgage market, Broeksmit said. The trade group “has long maintained that preserving at least two GSEs is essential to maintaining a competitive, efficient, and resilient housing finance system,” he wrote.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com