Will Trump’s Newest Housing Official Make Big Changes to the Mortgage Market?

Key Takeaways

• The Senate approved William Pulte to head the Federal Housing Finance Agency.
• Pulte has said the government should eventually end its conservatorship over Fannie and Freddie, which were brought under the agency's supervision in the wake of the 2008 financial crisis.
• Taking the pair of companies private could lead to higher interest rates and less accessible mortgages.

The new head of a little-known federal housing agency could lead to big changes for mortgage borrowers in the coming years.

The Senate voted last week to make homebuilding executive William Pulte the next head of the Federal Housing Finance Agency (FHFA). The FHFA was established in the wake of the 2008 financial crisis to oversee the secondary mortgage market, including supervising Fannie Mae and Freddie Mac.

Pulte could bring big changes to the agency, including returning these government-sponsored enterprises (GSEs) to the private sector. However, privatizing the two mortgage giants could disrupt the housing market, experts said.

What Would it Mean to Take Fannie Mae and Freddie Mac Private?

Fannie Mae and Freddie Mac don’t issue mortgages directly to consumers. Instead, they purchase mortgages from banks and package them together into a new investment that is bought by institutional buyers such as insurance companies, pension funds, and investment banks.

By purchasing mortgage loans from banks, Fannie Mae and Freddie Mac free up space on lenders' balance sheets, creating room for them to issue more loans. Essentially, these two entities keep money flowing for mortgage loans, helping to maintain affordability and access for borrowers. 

Under the FHFA's control, Fannie and Freddie have the federal government's backing to cover the mortgage-backed investments issued by the GSEs. But if taken private, the government would not guarantee those investments, making them more risky and, as a result, more expensive. 

Investors would likely buy fewer of the more expensive investments, sending less money back into the mortgage system and potentially leading to higher mortgage rates as banks have less money to lend out for housing.

In supporting Pulte's nomination, Mortgage Bankers Association President and CEO Bob Broeksmit said that Pulte would “play a pivotal role – along with Congress and the Treasury Department – should there be a concerted effort to end the conservatorships of Fannie Mae and Freddie Mac, which must be done in a way that avoids market disruption or increased costs for borrowers.”

Pulte Says He Won't Prioritize Privatization

In his Senate confirmation hearing, Pulte said the government should eventually end its conservatorship over Fannie and Freddie.

“Any exit from conservatorship must be carefully planned to ensure the safety and soundness of the housing market without upward pressures on mortgage rates,” Pulte told the Senate Banking Committee in February.

However, in an interview with CNN last week, Pulte said his first priority would be to root out fraud at the GSEs, rather than take them private immediately.