March 17, 2025Â | Premium Service | In the this issue of The Institutional Risk Analyst, we provide subscribers to our Premium Service The Outlook on US Housing Finance as Q1 2025 comes to an end. Given the changes already seen in the first three months of 2025, this will be an eventful year in housing finance and the credit markets more broadly.
With inflation indicators going contrary to the indicated narrative, the Street is walking back interest rate cut predictions again, this time to the second half of the year. Issuers are reacting accordingly. Meanwhile, the Trumpian Wave is sweeping through the federal government and the housing sector is seeing significant changes in how much Depression era government agencies will support the housing markets in the 2020s.
There is an old rule on Wall Street that industry sectors like airlines and auto manufacturers are trades rather than investments, but you could also add the housing GSEs to that list. The shares of Fannie Mae and Freddie Mac are down double digits over the past month, but each is still up hundreds of percent over the past year. Hedge fund moguls like Bill Ackman count the GSEs as among their best trades. Yet investors betting on release of the GSEs in the near term may have to wait until the Trump Administration's conservative allies in Washington complete a significant downsizing of the enterprises.Â
Federal Housing Finance Agency Director Bill Pulte was confirmed by the Senate in early March. Most of his public comments in recent weeks have been focused on achieving costs savings at the GSEs. Or to put it another way, slimming down the business footprint of the GSEs and walking back the Biden Administration’s idiotic loan pricing changes is not likely to help the cause of release from conservatorship. Under President Donald Trump, the Department of Government Efficiency (DOGE) has slashed headcount and vendors at HUD, the FHA and Ginnie Mae. Are Fannie Mae and Freddie Mac likely to be significantly downsized in terms of headcount and breadth of assets and activities? The answer is yes, as we discuss below.
