But Whatever: Fannie Mae Blacklists And Arrogance

The GSEs May Be Sold To Help Pay For A Tax Cut For The Wealthy
Housing Is Local But Mortgage Rates Are National
Privatizing The GSEs Supposedly Determine Whether Doing So Will Raise Rates

One of the housing related promises coming out of Washington D.C. has been to privatize Fannie Mae and Freddie Mac (government-sponsored entities/GSEs), often described by my peers as a couple of big dumb banks that got into trouble 17 years ago and were placed into “temporary” conservatorship. Selling off Fannie and Freddie is part of the bigger strategy to raise money to give big tax cuts to the wealthy. Supposedly, an attempt to privatize the GSEs is dependent on whether it makes mortgage rates rise. I like to say housing is local, but mortgages are national (thanks to Fannie and Freddie). In other words, mortgage rates don’t vary significantly around the US. The GSEs are important to consumers because they keep the mortgage market stable and set lending standards that other mortgage entities follow. Fannie Mae has been a force of nature in Washington D.C.

When I was traveling to DC quite a few years ago (I grew up there) for appraisal regulatory meetings, I remember learning that nearly every single public relations entity in the market had Fannie Mae as a client. And because of Fannie’s largely unchecked power, they continue to get into trouble, likely because their regulator, FHFA, seems decorative to me. The way to think about Fannie Mae – they were founded in 1938, and their culture is very aggressive and continually gets into trouble. Freddie Mac was founded in 1970 to compete with Fannie Mae. While their activities are somewhat different, they are basically a step-sister to Fannie Mae and just follow whatever they do. Their culture is much less arrogant than Fannie Mae.

Now many are looking at the GSEs, anticipating a DOGE purge of employees. The question remains: Will privatizing the GSEs raise or lower mortgage rates?

There is a terrific Walker & Dunlop podcast on this very topic you should check out: Should the GSEs be privatized? Jim Millstein, Jim Parrott, and Mark Zandi.

Here’s another important podcast by my friend Phil Crawford, who interviews Mark Calabria, former head of FHFA, on the GSEs as well.

Fannie Mae Wants To AVM Home Values

Freddie Mac follows most of the standards set by Fannie Mae. Coming out of the pandemic, about 7 out of 10 mortgages touched the GSEs, so they are critical to the stability of the mortgage market. But it gets better. They are pivoting towards using automated valuation models (AVMs) for estimating values (think Zestimates), and there is no apparent consideration given to the risk exposure to taxpayers. In the appraisal world, Fannie Mae is perceived as reckless with ambitions to remove appraisers from the mortgage process by relegating us to data collectors while they automate the analytics. They can’t determine whether a house is occupied by 500 feral cats with their analytics. Ha.

Here’s a simple example of Fannie Mae brow-beating appraisers, likely part of a strategy of getting rid of us. In the Midwest, if an underwriter didn’t like an appraisal, they would send an unsigned letter to the state licensing authority, jeopardizing the livelihood of the appraisers and thinking nothing of it. The appraiser had no recourse to Fannie Mae because they didn’t know who made the complaint and what their qualifications were to write such a complaint. There was such an uproar that Fannie Mae stopped the practice.

Former appraisers have told me at Fannie Mae HQ in Texas that when mortgage volume slows, they tweak their underwriting software to have lower standards to increase loan volume. If true, this is NOT appropriate behavior for an institution under conservatorship.

Fannie Mae Maintains A Condo Blacklist

The Surfside condo collapse in Florida four years ago caused Fannie Mae to create a list of problem buildings that needed more property insurance or significant repairs. There are now 5,175 condos on the list, 1,400 are in Florida and 733 are in California. This savages home values and forces the buyers to pay cash since financing isn’t available until the project fixes the issues Fannie Mae cites.

Deciding Whether Privatizing Raises Mortgage Rates

The administration in Washington has indicated that they won’t privatize Fannie and Freddie if it raises mortgage rates. While I don’t believe that will stop the privatization effort for a second, anything that disrupts the multi-trillion securities market should be a concern to anyone working in the housing market. The focus on lower rates is key and the ten year treasury takes front and center in economic policy focused on inflationary tariffs. There is a fantasic explainer piece in Fast Company by Lance Lambert of the must follow ResiClub.

Final Thoughts

The current administration in DC wants to privatize Fannie and Freddie to raise money for a big tax cut for the wealthiest Americans, but “only” if it doesn’t raise interest rates. When I step back and think about it as a layman, privatizing the GSEs adds massive uncertainty to the mortgage market (trillions of exposure in the bond market), which seems a compelling reason to assume it will push interest rates higher. JPMorgan thinks mortgage rates will rise as a result.

While it sounds like I’m being critical of all the risk management efforts Fannie Mae is undertaking, their arrogance as an institution is itself, high risk.

The Actual Final Thought – Delinquency rates of single family homes are super low, but whatever.

Monday Mailboxes, Etc. – Sharing reader feedback on Housing Notes.

March 19, 2025: Canada’s Housing Market: Take Off ‘Eh”

Hey there. Just a quick note to tell you how much I appreciate Housing Notes ! Thank you for the work, education and good old fun reading. Looking forward to the next one as always. Hope all is well.
Used to love Mt Orford. Hope all is well with you and your family these days.
No wonder Canadians are (or maybe were) so pissed off at Trudeau and the liberals….at least until Trump made them madder

March 17, 2025: First Lets Kill All The Lawyers