Jim Lockhart on the cooperation needed to get the GSEs out of conservatorship
Feb 18, 2025
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In this engaging discussion with Jim Lockhart, a seasoned expert in housing finance, he dives into the complexities of Fannie Mae and Freddie Mac's conservatorship. Lockhart emphasizes the necessity of a strategic approach to transition these entities while navigating high mortgage rates and housing affordability. He reflects on the historical impact of conservatorship and the surprising legislative inaction since. The conversation also highlights crucial issues in government debt management and the need for bipartisan cooperation to ensure a stable mortgage market.
Jim Lockhart argues for timely action to remove Fannie Mae and Freddie Mac from conservatorship to ensure stability in the housing finance system.
He advocates for a bipartisan approach to address the national debt and improve government efficiency, emphasizing reforms in entitlement programs.
Deep dives
The Case for Exiting Conservatorship
It is believed that now is the appropriate time to consider taking Fannie Mae and Freddie Mac out of conservatorship, despite the current challenges in the housing market, including high mortgage rates and affordability issues. Jim Lockhart emphasizes that it's been over 16 years since these entities were placed under conservatorship, and delaying any action may prolong their status without addressing necessary reforms. He argues that the existing situation fosters a heavily government-backed mortgage market, with nearly 70% of mortgages supported by the government, which may not be sustainable or beneficial in the long run. Lockhart advocates starting the process of exiting conservatorship while ensuring the protection of the existing $7 trillion in outstanding mortgages to maintain stability in the housing finance system.
Proposed Changes to Fannie and Freddie Structures
Lockhart suggests that Fannie Mae and Freddie Mac could form subsidiaries to operate new business lines, specifically for multifamily and single-family mortgages, which could help modernize their structure and operations. These subsidiaries would be capitalized by their parent companies and could eventually pursue an initial public offering (IPO), creating a more competitive environment in the housing finance market. He emphasizes that allowing these entities to operate more independently may foster creativity and innovation, while also addressing the current high standards of mortgage underwriting that have been established since the financial crisis. Through this approach, Lockhart believes it's possible to balance private market participation with the need for government backing to ensure consumer protection and economic stability.
Addressing Debt and Future Challenges
The discussion touches on the alarming level of national debt, which stands at $36 trillion, with an additional implicit debt in the form of government-backed mortgages. Lockhart points out that significant reforms are required in entitlement programs like Social Security and Medicare to manage future deficits effectively. He suggests a bipartisan approach to tackling these issues, which involves working collaboratively across party lines to devise solutions that can mitigate future financial burdens. By streamlining government operations and engaging with experienced personnel within agencies, Lockhart believes lawmakers can address inefficiencies and create a more sustainable fiscal future.
On today’s episode, Editor in Chief Sarah Wheeler talks with Jim Lockhart, senior fellow at the Bipartisan Policy Center, about streamlining the government — from tackling the national debt to getting Fannie Mae and Freddie Mac out of conservatorship.
Lockhart was the director of FHFA during the financial crisis and was a member of the TARP Oversight Board. He also served as Vice Chairman of Wilbur Ross’ private equity firm.
The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.
