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Fannie and Freddie Are Now Explicitly Guarantied

posted by Adam Levitin

When will Donald ever learn to run his tweets by counsel before posting them? He consistently shoots his legal position in the foot. The latest is about the implicit government guaranties of Fannie Mae and Freddie Mac: 

I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the US Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President.

Pro tip: it's not an "implicit" guaranty if you say it out loud. Once you do, it's explicit. 🤦

That's actually potentially a huge problem for federal accounting purposes. The whole reason that Fannie and Freddie's enormous book of debt is not on the federal balance sheet, blowing through the debt limit, is that the guaranty has always been implicit: it's about a wink and a nod. With this tweet, I am not sure that it is possible for Fannie/Freddie to come off the federal balance sheet even if privatized because of the now "explicit" guaranty. (Or as a fallback, there's a promissory estoppel argument.) As far as I can tell, because of an over-eagerness to tweet, Fannie and Freddie's obligations now bear the eagle. Maybe the CBO will view this differently, but all that comes to mind right now is the timeless words of Napoleon Dynamite:

image from media.tenor.com

 

May 27, 2025 at 7:03 PM in Financial Institutions, Mortgage Debt & Home Equity, Too Big to Fail (TBTF)

Comments

Can't it be easily structured as an insurance or credit risk transfer program, which doesn't require the US treasury to take on all the obligations of the GSEs?

Posted by: mbs analyst | May 28, 2025 at 10:41 PM

What is the point of making them for profit with govt guarantees except to rake % off the top for executives and "privatize the gains and socialize the losses"?

Posted by: Dennis Doubleday | May 29, 2025 at 04:26 PM

This is so very funny. Bravo, Adam.

Posted by: Mitu | June 04, 2025 at 03:53 PM

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