Government LendingRegulatory

Fannie Mae and Freddie Mac announce underwriting advisers

J.P. Morgan and Morgan Stanley will guide the GSEs as they end conservatorship

Fannie Mae and Freddie Mac, the world’s largest mortgage financing companies, announced on Monday the firms they will use as financial advisers for a future share offering, another step toward exiting their 12-year government conservatorships.

Fannie Mae, the bigger of the so-called government-sponsored enterprises, said it has chosen Morgan Stanley while Freddie Mac said it will use J.P. Morgan. Together, the two mortgage companies guarantee more than half of the $11 trillion outstanding U.S. home loans.

Announcing the advisers in the middle of the worst health crisis to hit the U.S. in more than a century underscores the Trump administration’s determination to end government control of the mortgage giants before “election risk” gets in the way. That’s the polite term pundits use to highlight the possibility that President Donald Trump may lose the election in November, which would leave Democrats to decide the fates of the two companies.

The newly announced advisers will help take Fannie and Freddie through steps that are necessary to leave federal conservatorship, including reviewing their business plans and strategies for recapitalizing the companies.

“We look forward to working with J.P. Morgan to continue meeting the milestones necessary to begin our new chapter as soon as possible,” said David Brickman, Freddie Mac’s CEO. “At the same time, our focus on supporting borrowers, renters and lenders in the face of COVID-19 is stronger than ever.”

In the dozen years since the companies were seized in 2008 by the federal government, which said they were on the brink of insolvency because of investments in subprime bonds, almost all of their profits have been directed into the coffers of the U.S. Treasury.

The bailout was a good deal for taxpayers. Combined, the companies have paid $120.6 billion more to the federal government than they received in bailout funds.

Last year, the Federal Housing Finance Agency said Fannie Mae would be permitted to retain earnings until its capital buffer hits $25 billion, while Freddie Mac was allowed to hold $20 billion. It was a first step toward “recap and release,” as the plan to recapitalize and free the companies is known.

In February, the FHFA hired Houlihan Lokey to advise it on ending the conservatorships. At the time, FHFA Director Mark Calabria said Fannie Mae and Freddie Mac would need to hire their own advisers.

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