AP Photo
This week, the Donald Trump–appointed chief regulator for the two quasi-governmental companies that own or control about half of the residential housing market anointed himself the board chair of both those companies. This maneuver could signal a host of shenanigans: the culmination of a 17-year hedge fund get-rich-quick scheme, a balance-sheet fiction to justify tax cuts, a new favor factory for apartment developers with ties to the president, a data transfer so Elon Musk’s everything app can learn how to sell mortgages, or something equally problematic.
But what gives former board members, market observers, and officials at the regulator greater concern is the distinct possibility that mucking around with the $7.7 trillion secondary mortgage market could lead to breaking it.
If that happens, homebuyers may not be able to get mortgages, homebuilders may be reluctant to break ground, and uncertainty would abound in a market that has brought down the economy on more than one occasion in U.S. history, most recently in 2008. “It could freeze sales, freeze refinances, stop people from forming households, cause people to be afraid of moving, freeze up developers of housing and the secondary market,” said David Reiss, a professor at Cornell Law School.
On Monday, according to securities filings, Bill Pulte, the new director of the Federal Housing Finance Agency (FHFA), appointed himself chair of both Fannie Mae and Freddie Mac, known as the government-sponsored enterprises, or GSEs. Pulte came from a family business that is now the third-largest homebuilder in the country, but he left that behind to run a private equity firm, and became renowned as a meme-stock impresario, hyping companies like GameStop or Bed Bath & Beyond to retail investors.
Pulte, whose agency currently has the power of management over Fannie and Freddie, also removed 14 of the 25 sitting board members at the two companies. In addition to himself and Clinton Jones, the FHFA general counsel who was appointed to both boards, Pulte added four other board members, including a former portfolio manager with well-known hedge fund Elliott Management and (briefly) an engineer tied to the Department of Government Efficiency (DOGE). Another new board member, Brandon Hamara, previously worked for Pulte.
Two sources told the Prospect that Pulte initially wanted to fire the entire Fannie and Freddie boards, until he was informed that each GSE must have at least nine board members at all times. At Fannie Mae, the entire audit committee was fired, and at Freddie Mac three of the five audit committee members were let go. Audit committees are required by public-company standards to have financially experienced and independent members; it’s not clear that the incoming directors have those qualities.
FHFA declined to comment to a number of questions posed by the Prospect.
The biggest question surrounding this shake-up is about what Pulte and Trump have planned for the GSEs. Ask ten people this question and you’ll get 11 answers.
The Privatization Play
Let’s step back. Fannie and Freddie’s mission is to make it easier for Americans to buy a house. They dominate the secondary market for mortgages in America. Banks and other lenders actually sell mortgages to customers, but Fannie and Freddie then buy those mortgages that conform to certain lending standards, providing more capital for more lending. They then bundle these mortgages into bonds, which have at least the implicit backing of the government, making them attractive to investors.
When the GSEs needed to be rescued as the housing bubble collapsed in 2008 (in part because of increased investments in subprime mortgages in the late bubble years), the government loaned them $191 billion and put the two companies into conservatorship until the loan was paid off. The terms of repayment have changed over the years, but by this point, the GSEs have paid back the government what they owed and then some. Still, because of those terms, they remain in debt to the U.S. and under conservatorship.
For the housing market, conservatorship has worked pretty well: Borrowers have access to mortgages, standards have not loosened, and the market is rather stable. Fannie- and Freddie-backed loans stay out of delinquency at rates that are three times better than the rest of the housing market. But one group is very unhappy: the hedge fund moguls who bought Fannie and Freddie stock cheap, hoping that they would one day be privatized and the stocks would surge, netting them tens of billions of dollars.
Bill Ackman, a big Trump supporter, purchased hundreds of millions of dollars in Fannie and Freddie shares in the early 2010s. Ackman wants the government to credit the past repayments as covering the debt it was owed, potentially thereby lowering capital requirements for the GSEs, so they can be released to the market. Hedge fund manager John Paulson, another Trump confidant, would gain handsomely from this deal as well. Paul Singer of Elliott Management holds no shares, but it’s interesting that Cody Kittle, an Elliott portfolio manager until 2023, was named to the board of Freddie Mac. The hedge fund world is small and its relationships are deep.
Everyone has expected Trump to embrace this scenario and privatize the GSEs once they gain more capital in the next couple of years. Flipping Fannie and Freddie would seem to fit with Pulte’s background as a retail investor hype man, and shares in both companies have soared since the 2024 election. But firing the majority of the boards and creating uncertainty with the very investors you would need for a successful spinout would not be a good prelude to privatization, as experts who spoke to the Prospect unanimously agreed.
Pulte himself has said that privatization is not a top priority, and that the effect on mortgage rates, which are already high at 6.7 percent, must be considered. Simply put, removing the conservatorship would raise questions as to whether Fannie and Freddie’s bonds are truly risk-free, and if investors demand greater payment for added risk, that would likely flow into what lenders charge for mortgages.
The Biden administration made amendments to the agreement with the GSEs in January that gave the Treasury Department veto power over GSE privatization, and new Treasury secretary Scott Bessent has also conditioned any GSE release from their conservatorships on their likely effect on mortgage rates. Sen. Elizabeth Warren (D-MA), ranking Democrat on the Senate Banking Committee, has pushed this point in hearings, calling the privatization spin-off “great for billionaires, terrible for hardworking people.”
But there’s a lot of pressure to privatize, both externally and internally, even if it will take years. Mark Calabria, a major supporter of releasing the GSEs who ran FHFA in the first Trump administration and would have pushed through privatization had it not been for the pandemic, has returned to government at the Office of Management and Budget, with a portfolio that includes housing. And the hedge fund guys aren’t going to stop pushing for their payday.
A Revenue Gimmick
Two sources who asked for anonymity told the Prospect that one possible motivation for the board play was to create a balance-sheet windfall. The government, under the terms of the conservatorship, has the option to buy 79.9 percent of common stock in the GSEs. If they convert those options to stock, they could be worth as much as $250 billion, at a time when Republicans are looking for money to offset the cost of their tax cuts.
If Treasury sold all of its shares at once, however, the stocks would tank. But there’s a way for the government to get those funds that doesn’t require selling stock. Trump could resume directing Fannie and Freddie’s retained earnings to the Treasury, which the government did between 2012 and 2021. This would amount to roughly $30 billion per year, which would represent $300 billion in the budget window for the government. That’s a big enough number to be meaningful in the tax cut debate as Republicans need to offset some of the more than $4 trillion that they’ve designated for tax breaks to the wealthy.
Another option suggested by one person familiar with the debate was that Trump’s proposed sovereign wealth fund could get the revenue. This kind of play would fit better with Trump’s desire to centralize control. He could just take the profits of the GSEs and use them for his own purposes.
The boards of directors would need to approve any of these ideas, so having friendly faces there is critical.
Multifamily Glad-Handing
The GSEs have a pretty sober business on the single-family side, and since the housing collapse really originated there, a lot of work was done to clean up that part of the business. But Fannie and Freddie also make loans in the multifamily market to support building of apartments and condos. A former official with one of the GSEs told me that business is a little looser, with ways to enhance those loans.
This president, of course, is a multifamily real estate developer himself, who has friends in multifamily real estate development. Hamara, one of the new board members, is a vice president at Tri Pointe Homes, a major homebuilder. You could imagine these relationships leading to the GSEs pushing risk limits, loosening credit standards, or raising loan-to-value ratios for favored borrowers. There is a secret mortgage blacklist at Fannie Mae for condos without enough property insurance or in need of repairs; controlling the board could make that blacklist go away, at least for certain developers.
This kind of setup resembles the opportunity zones that were a feature of the 2017 Trump tax cuts. They gave significant tax breaks to investors in certain communities deemed in need of development. Trump administration officials credit opportunity zones with increasing housing construction, but critics argue that the investments were rife with corruption and favor-trading.
That could also be the case here: New criteria guiding the new boards might lead to more multifamily housing, but with uneven results, favors to friends, and idiosyncratic deals that would be more about boosting allies than building housing. And as Calabria has pointed out, Fannie and Freddie are likely under Trump to cancel affordable-housing initiatives, meaning that sweetheart deals might only extend to the developers, rather than the public. Plus, there is the potential for dramatic losses if lending standards erode.
Reiss, of Cornell, agreed that this was all a possibility. “If someone gets to one of the directors, and they are there not acting as a fiduciary for the company, it opens the door to political favoritism,” he said.
X Mortgage
The presence of a DOGE member on the Fannie Mae board raised a lot of eyebrows. His name is Christopher Stanley, a SpaceX and X engineer who was last seen on the roof of the Eisenhower Executive Office Building installing Starlink Wi-Fi internet, something that almost caused an incident with the Secret Service. Stanley unexpectedly resigned from the board on Tuesday, according to a regulatory filing.
Before Stanley resigned, a former board member theorized about DOGE’s presence. The usual attempt to “find” fraud, for example, could be a prelude to making a bigger pitch for privatization. But more elementally, Fannie and Freddie have huge databases full of information on borrowers and lenders and commercial real estate developers. Typically, board members would never look at personally identifying information, but given past experience, there’s a credible fear of transferring that information to DOGE.
Should those databases be accessed by DOGE and their allies, whoever they might be, it’s unlikely that anyone would start making decisions about individual creditworthy borrowers, though anything is possible. But there could be a different purpose. Someone who wants to get into mortgage origination could have a field day synthesizing all that information and understanding mortgage markets and where there are opportunities.
Elon Musk’s ambitions have never explicitly included the selling of mortgage credit. But he does want X to be an “everything app,” including for financial transactions, and a mortgage is the biggest transaction a person can make.
What If It Breaks
Pulte is expected to force job cuts at the GSEs, which employ roughly 15,000 people. He has already been making familiar noises about DEI and remote work. One possibility on the table at the GSEs is merging Fannie and Freddie; you don’t usually have the same person chair the boards of two direct competitors. The regulatory agency is also likely to see cuts; already at FHFA, according to one source, fair lending and consumer protection groups have been put on administrative leave, along with employees at the Division of Research and Statistics.
Controlling the boards would limit dissent about these actions. But cuts in the name of efficiency could strain or even rupture the numerous functions the GSEs carry out, with consequences for the entire housing market.
Due to the conservatorship, the GSEs are limited in what they can pay their employees, which has led to a talent drain. Some systems have not been integrated, and others are not up to industry standards. Fannie and Freddie have a cautious internal culture that doesn’t move quickly. Hacking away at their already weakened structure could easily create operational harm.
But Reiss explained that nothing has to overtly break to lose the confidence of the markets; even a lack of workforce to move the paper around could create that impression, and disrupt the flow of credit. “If there is any kind of uncertainty, the spread between Fannie and Freddie securities and Treasury bonds will increase,” he said. “Investors will ask if the government will make good on Fannie and Freddie bonds. This uncertainty and direction could increase costs over time for all borrowers.”
We saw with the attempted dismantling of the Consumer Financial Protection Bureau that Trump officials didn’t even know the intertwined depths of housing market plumbing. That goes double for the multitrillion-dollar businesses at Fannie and Freddie. A DOGE-style battering ram may just hit a retaining wall, and bring down every house in the country, to extend the metaphor.
One thing is clear: Pulte is now on the hook for whatever happens. As the FHFA director, he could at least have said he tried to mitigate the damage at Fannie and Freddie. But now that he’s also board chair for them both, any damage will be laid at his feet. And Donald Trump’s.
