Will the GSEs Be Released Before the Housing Correction?

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September 17, 2025 | This week, The Institutional Risk Analyst is in Washington for meetings and also an unexpected speaking opportunity. Federal Housing Finance Agency Director Bill Pulte canceled an appearance at the Exchequer Club of Washington that was scheduled for today, so we naturally agreed to help.

Instead of Director Pulte, T he Exchequer Club hosted Mortgage Bankers Association President Robert Broeksmit, former FHFA Director and Housing Policy Council head Edward DeMarco, and Whalen Global Advisors Chairman Christopher Whalen for a conversation on Fannie Mae, Freddie Mac, a potential IPO and movement out of conservatorship.

As we noted in our regular column in National Mortgage News, the GSEs have a long way to go before they are ready to function as public companies. First and foremost, the two mortgage enterprises have become entirely bureaucratic and ossified after almost two decades under government control. Basically the entire staff and leadership of the GSEs must be replaced and a culture of customer service created. A good model for the necessary transformation is available at Ginnie Mae during the tenure of President Ted Tozer (2010-2017).

The Trump team at HUD and Ginnie Mae is quite strong, with deep industry knowledge and experience in 1-4s and also multifamily assets. In contrast, the bureaucrats who populate the GSEs seem to think that they are doing the mortgage market a favor. Many key people inside the GSEs have never actually worked in finance and have no grasp of how the industry creates residential mortgages and capitalizes these crucially important assets.

Instead of working with the mortgage industry, the officials of the GSEs pretend to be regulators and lord over independent mortgage banks. But the secondary market for 1-4 family mortgages has changed a lot since 2008. If Fannie Mae and Freddie Mac do not radically change their cultures and personnel, then we suspect that the large bank and nonbank issuers who dominate the upper end of the mortgage industry will chew them up and spit them out.

Just remember, both the United States (and the GSEs) and JPMorgan (JPM) are "AA" credits, as we noted in our last comment. The US mortgage market is moving back towards a state where a growing portion of annual volumes are being done as private loans for larger assets and government-insured loans for smaller assets. The GSEs are being squeezed between inflation of home prices and large buyers of loans above the conforming limit and superior execution from government lenders at the bottom of the market.

This week, the mortgage industry has been participating in “discussions” with the Treasury about the prospect of GSE reform. The discussions are being done in the ministerial style of Washington, with Treasury officials asking prepared questions, the market participants giving cautious answers and the junior members of the team furiously taking notes. These notes will be carefully stored in the same closet that houses the earlier work done on possible GSE release. But during Trump I, the massive appreciation in home prices c/o the Fed and QE was just starting.

Remember, Remember the 1st of October

Speaking of falling real estate values and rising mortgage default rates, we’d be remiss if we did not mention that Rithm Capital (RITM) has apparently won the bake-off to acquired troubled commercial real estate REIT Paramount Group (PGRE), which traded as low as 0.3x book value a year ago but now is trading just 0.5x book. To us, PGRE gives new meaning to the term "road kill" in the world of commercial real estate, but remember that falling interest rates may not help all or even most distressed commercial properties.

“After a lengthy bidding process, which included SL Green, Vornado, Blackstone, Empire State Realty and DivcoWest with Dubai-based Saray Capital,” the Real Deal reports, “Rithm is poised to expand deeper into commercial real estate if the deal for the ailing REIT goes through.”

While we have enormous respect for the team at RITM, we worry about one of the largest owners of Ginnie Mae servicing expanding into distressed commercial real estate when the market for 1-4 family loans is headed for a significant correction. Starting October 1, 2025, all of the COVID-era loss mitigation waterfalls go away and visible loan delinquency in 1-4s is likely to rise rapidly.

Q: Do you suppose the folks inside the Trump White House, who spend much of the day watching Newsmax (NMAX), understand that loan forbearance is about to end for tens of thousands of American households on October 1st?

"The permanent FHA loss mitigation procedures that start on Oct. 1st have eliminated special forbearance altogether and consolidated the non-disaster forbearances (formal/informal) into just one forbearance," notes John Comiskey in his always insightful blog. He continues:

"This change won't be nearly as impactful as the change limiting partial claims/modifications to 1 per 24 months or requiring 3 trial plan payments to get one at all, but for every scenario save a presidentially declared disaster area will now leave the forbearance decision entirely at the servicer’s discretion."

Remember the timeline laid out by Freedom Mortgage founder Stan Middleman in our 2024 biography "Seeing Around Corners." The Fed cuts rates in ‘25 & ‘26, the mortgage market has a mini boom and home prices go up even more, then we have a maxi home price correction ~ 2028. Home prices are already starting to fall, but a very late FOMC rate cut will delay the correction for a couple of years and make the eventual reset deeper and more problematic for the mortgage industry and the GSEs as well. Something to look forward to in coming weeks and months.

The Next Fed Chairman?

As Wall Street awaited the September decision from the Federal Open Market Committee on interest rates, we heard some interesting reports about the likely choice for Fed Chairman after the departure of Chairman Jerome Powell that we'll discuss in our next Premium Service comment. But what about the Presidents of the Federal Reserve Banks, who all roll off next year?

The terms of Federal Reserve Bank presidents are for five years and expire on the last day of February in years ending in 1 or 6, such as 2026, 2031, etc. We noted on X yesterday that the Trump Administration may leave some or all of the slots for Federal Reserve Bank presidents vacant next year, unless the regional boards of directors of the 12 regional banks serve up candidates with sufficient MAGA credentials.

When Franklin Delano Roosevelt created the centralized Board of Governors in Washington in 1935, he gave the Board veto power over the supposedly independent, bank-owned federal reserve banks. So much for central bank independence from partisan politics. If we really want an "independent" central bank, get the Fed out of Washington, but that it the last thing that Wall Street or the financial media want.

The Congress ought to abolish the FDR-imposed Board of Governors in Washington, create three more federal reserve districts in the western US, and turn the palatial Federal Reserve Board HQ on Constitution Avenue into an ornate homeless shelter. Keep in mind that when Congress passed the Banking Act of 1935, there was no meaningful debate on the creation of the Board of Governors. FDR was a dictator.

In the next issue of The Institutional Risk Analyst, we’ll be looking at the consumer lenders as Q3 2025 comes to an end. We’ll also being reviewing our non-bank finance group, which now includes names such as Brookfield Management (BN), Chime (CHYM), and Circle (CRCL). Many of the fintech and coin IPOs that came out earlier this year have sold off from their offering prices. And remember that our Summer Sale ends next week.

Will the GSEs Be Released Before the Housing Correction?

Remember, Remember the 1st of October

The Next Fed Chairman?

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