Page 33 - January 16, 2025 Bulletin

The Path to Reprivatization to some estimates, the resultant increase in mortgage rates
could be close to 1%. Analysts also believe an explicit
government guarantee, akin to what they currently have under
Releasing the GSEs from conservatorship is a complex and
multifaceted process. At this point, there is also no agreed upon conservatorship, would likely still be necessary to ensure
path for how to do it. FHFA regulations prohibit the GSEs mortgage-backed securities remain attractive to investors.
from being released until they are fully recapitalized and various The future path of the GSEs is undoubtedly uncertain but
other requirements are met. The most straightforward way to this will be an important issue for investors to watch as the
recapitalize the entities would be through accumulating retained new administration takes office, especially given the potential
earnings. However, because the GSEs have only been permitted consequences on the mortgage market and the implications on
to retain some earnings, it would likely still take a number of homeowner affordability.
years more for them to retain enough to meet a minimum
capital requirement. Andrea F. Pringle is a financial strategist and MBS
analyst at The Baker Group. A native Oklahoman, she
began her career in Washington, DC, where she earned
Another complicating factor is the nature of their PSPA
agreement with the Treasury, which compensated the Treasury her MBA from George Washington University. Andrea
for its financial support by awarding it warrants on the GSEs worked on the capital markets sales and trading desk at
common equity for ~80% of the shares of each GSE. This means Fannie Mae for five years before returning to Oklahoma
that were conservatorship to end, the government would still to work in corporate finance. Before joining The Baker
effectively have 80% voting control of each GSE. Selling those Group, Andrea was the supervisor of corporate finance at
positions to fully unwind government control would not be a publicly traded energy company. She joined The Baker
straightforward either. Given the size of the positions, which is Group in 2020 with a special focus on mortgage products
estimated to be more than 8x the largest IPO ever done, selling and investment strategies.
the shares could take several years to complete.

Additionally, increased capital requirements could lead to
higher guarantee fees from the agencies, potentially resulting in
an unpopular upward pressure on mortgage rates. According

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