The News
President Donald Trump’s Federal Housing Finance Agency director is jettisoning executives and policies at breakneck speed, sparking chaos at the mortgage firms he oversees as his ultimate goal remains elusive even to Republicans.
The uncertainty is sparking fears that FHFA chief Bill Pulte could next seek to reduce the footprints of Fannie Mae and Freddie Mac, whether through further policy changes or layoffs — a move that would risk making housing less affordable, just as President Donald Trump’s tariffs threaten to do the same.
That risk comes from Fannie and Freddie’s roles processing most of the nation’s mortgages by packaging them into bonds to sell investors. Narrowing their lane in the market by reining them in or cutting them back could raise rates and make it pricier to buy and rent homes, at least temporarily.
“We’re thinking about that as the main thrust of the outcome,” said Eric Hagen, who tracks mortgages as a managing director at BTIG.
It’s a little-understood political hurdle for Trump, who’s already facing indigestion within his own party over how his policies are affecting US consumers. He announced tariffs Wednesday that could not only push construction costs higher, but also provoke foreign countries into dumping mortgage-backed securities purchased from Fannie and Freddie.
So far, Pulte is giving nothing away: He dodged questions on privatizing the firms during his Senate confirmation hearing and later insisted he has no plans to reduce their footprint by lowering loan limits. Some economists, meanwhile, say they expect any upward pressure on costs to subside once the private sector has a chance to step in.
“You’re talking about a temporary effect” from shrinking Fannie and Freddie, said Norbert Michel, vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives. “Maybe it’ll take a little time, but you’re going to end up with a few large players in the market again.”
But Democrats are already hammering Pulte — a thirty-something former private equity executive whose grandfather founded a lucrative homebuilding company — for endangering the already-struggling market. High interest rates and limited supply had recently depressed home sales to a rate only “modestly above” the aftermath of the Great Recession, according to Wells Fargo economists.
“It’s pretty ironic that the guy who ran for president promising to lower costs for American families on Day One is now causing the kind of turmoil at Freddie and Freddie that could drive up the cost of home mortgages for everybody in this country,” Massachusetts Sen. Elizabeth Warren, the Banking Committee’s top Democrat, told Semafor.
The upheaval began last month, when Pulte fired scores of board members and top executives at Freddie and Fannie, then made himself chair of both companies’ boards, setting in motion a frenetic return-to-office. It continued with more firings — including those of Freddie Mac’s chief compliance and ethics officer — and a series of policies rescinded via social media.
One employee told Semafor they’ve been told that additional layoffs are “inevitable.” Another said simply that “morale is dead.”
“It’s not about anything other than the agenda they can spin, so outside people think they’re doing something good,” said the first employee, who was granted anonymity to speak candidly.
FHFA did not comment for this story.
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The consequences of Pulte’s shakeup go deeper. Democrats warn that turmoil at Fannie and Freddie also risks imperiling bipartisan talks on legislation, including between Warren and Sen. John Kennedy, R-La., that would use federal resources to incentivize state and local governments to roll back housing regulations in a bid to improve affordability.
“Destabilizing Fannie and Freddie, as the Trump administration appears to be doing, will undermine affordability,” Rep. Ritchie Torres, D-N.Y., told Semafor. “It poisons the well. It will inhibit bipartisanship.”
Torres is a vocal proponent of the “abundance agenda” laid out by authors Derek Thompson and Ezra Klein in a high-profile new book that urges Democrats to pare back regulations, particularly in the housing sector.
Then there’s the privatization debate. Influential Trump advisers — including former FHFA Director Mark Calabria, now handling housing policy for the Office of Management and Budget — have long advocated for the government to sell its stake in Fannie and Freddie. Treasury Secretary Scott Bessent even suggested incorporating the firms into Trump’s proposed sovereign assets fund.
Republicans close to the administration told Semafor they hope Pulte has privatization in his sights. But for now, they say the FHFA director is keeping his cards close to the chest, which only adds to the questions about the firms’ futures.
“I have not heard any specific longer-term plans right now — this is about cleaning up the organization, getting people back to work, and I suspect he’ll get to that a little bit later,” said Sen. Thom Tillis, R-N.C.
Privatization carries its own risks of higher housing costs, including the possibility that investors force higher premiums to offset the lack of government support. That could lead to even higher mortgage rates.
“There’s basically no way that you could take Fannie and Freddie out of conservatorship and mortgage rates would go down,” Daniel Hornung, who served on the Biden administration’s National Economic Council, told Semafor. He added that Pulte’s overhaul could make privatization harder by unsettling investors.
Steve Hanke, a professor at Johns Hopkins University who coined the term “privatization” while serving on the Reagan administration’s Council of Economic Advisers, told Semafor he has another fear: that the Trump administration could cut its allies a discount.
“I am for privatization, but you have to do the privatization the right way,” Hanke said. “One wrong way is basically to give the public asset away to some private crony. And that is my biggest concern about Freddie and Fannie, that the price that it’s exchanged for will not be a fair market price.”
The View From Democrats
Senate Democrats, including Minority Leader Chuck Schumer, probed Pulte over his “sweeping changes” at FHFA, Fannie and Freddie in a pair of new letters last week.
Warren also told Semafor that “step one is to go to the courts and make sure they’re following the law.”
But lawsuits against the FHFA have yet to emerge, even as speculation mounts that Pulte could have broken the law barring agency directors from “hold[ing] any office” at Fannie and Freddie by appointing himself chair of their boards.
Eleanor’s view
This is the beginning of the road for Fannie and Freddie. It’s hard to imagine Pulte won’t soon pursue more sweeping policy changes and staffing cuts.
It’s also hard to imagine that frustrated employees won’t try to leave of their own accord, especially if Pulte continues to communicate little about his broader strategy.
Where the road leads is less certain. Pulte’s evasiveness about his long-term plans with even Republican lawmakers would seem to indicate the GOP isn’t aligned on privatization as an end goal, let alone the best way to get there.
Room for Disagreement
Republicans want to hear more from Pulte about his endgame, but they don’t share the heartburn that has descended inside Fannie and Freddie. Every GOP member of the Senate Banking Committee signed on to a letter Thursday that asked Pulte to “provide an update” but also urged him to “continue identifying waste.”
“What Pulte has found is enormous mismanagement,” Sen. Bill Hagerty, R-Tenn., told Semafor. “He’s got to have enough time to get his arms around it.”
Hagerty and others reiterated their conviction that privatizing Fannie and Freddie the right way would benefit the government and home buyers — especially if interest rates can also be brought down.
“I’m hoping that if we do it correctly, we’ll actually make them competitive,” Sen. Mike Rounds, R-S.D., told Semafor.
Notable
- The administration has weighed issuing an executive order on housing that could direct departments to study privatizing Fannie and Freddie, a person familiar with the talks told the Wall Street Journal.
- Calabria expounded on his vision for Fannie and Freddie, whose conservatorship he said “has gone on a lot longer than Congress intended,” in an appearance on Voice of Appraisal.
Kadia Goba contributed to this report.