The head of the Mortgage Bankers Association (MBA) is calling on the Trump administration not to pursue a merger of Fannie Mae (OTCQB: FNMA) and Freddie Mac (OTCQB: FMCC) as part of its effort to conclude their longstanding federal conservatorships.
In a blog post, MBA President and CEO Bob Broeksmit noted the idea of merging the two government-sponsored enterprises was raised in the past but was “ultimately rejected for sound reasons that remain as relevant today as they were then.” He stated that keeping the enterprises separate was better for the housing finance system.
“Competition between Fannie Mae and Freddie Mac has been central to their success in providing liquidity and stability to the mortgage market,” Broeksmit explained. “Creating a government-conferred monopoly would diminish innovation, degrade service to market participants, and heighten systemic risk by concentrating housing finance operations within a single entity.”
Broeksmit added, “Conservatorship itself has already constrained the GSEs’ ability to compete and innovate. Many stakeholders have described this as the “HUDification” of the enterprises—a gradual erosion of their entrepreneurial and competitive character. A merger or common ownership structure would compound this problem, undermining the very rationale for re-privatization and reducing the incentives necessary for robust competition under a sound regulatory framework.”
Broeksmit permitted that having Fannie Mae and Freddie Mac in competition would spur new technology solutions and product development, encourage risk-sharing transactions, and encourage “specialized market expertise in areas such as condominiums, manufactured housing, and renovation products.”
However, he admitted that was important for the two enterprises to have alignment in “standardized servicing practices, uniform documentation, consistent appraisal standards, and the successful implementation of the uniform mortgage-backed security (UMBS). Likewise, market conduct and pricing oversight by the GSEs’ regulator is critical to ensuring equal access and a level playing field for originators of all sizes and business models. These areas of alignment promote efficiency and fairness without diminishing the competitive benefits derived from maintaining two distinct enterprises.”
Broeksmit concluded, “As policymakers weigh potential paths forward, preserving meaningful competition between Fannie Mae and Freddie Mac must remain a guiding principle. A housing finance system built on innovation, resiliency, and consumer benefit depends on it.”
