Mortgage GSE Reform: One Step Further on a Long Journey

This commentary reviews the recent agreement to amend the mortgage GSE's Senior Preferred Stock Purchase Agreements with the U.S. Treasury.

Key highlights include:

-- On January 2, 2025, the U.S. Treasury and FHFA issued a joint statement announcing an agreement to amend the SPSPAs between the Treasury and the mortgage GSEs, restoring the Treasury with the right to consent to any discretionary action by the FHFA regarding the release of the GSEs from conservatorship.

-- The FHFA also outlined a roadmap with the intention of facilitating an orderly process should the process of releasing the GSEs from conservatorship be initiated, including a public request for comment on any potential recommended approaches.

-- While these new requirements would slow any attempts at release, we don't view them as substantial roadblocks. Nonetheless, the process remains a long one given the low margin of error and the need for any solution to be well thought out to minimize transitional disruptions.

"Although the upcoming Trump administration may attempt to move forward with a release, our view is that the mortgage GSEs will likely continue in their current state of conservatorship in the medium term given the complexities involved and the risk of upsetting the market dynamics established by the status quo" said Eric Chan, Vice President - NA Financial Institutions Ratings.