◼ FINANCE Bloomberg Businessweek March 9, 202024
● A lot’s riding on what this regulator does with
Fannie Mae and Freddie MacHe’s Got the
30-Year Mortgage
In His Hands
Freddie help make possible by buying up home
loans and packaging them to be sold in the bond
market. By May or June of next year, he says,
Fannie or Freddie may be ready to exit U.S. con-
trol and seek an infusion of cash from new inves-
tors in what could be one of the largest public
stock offerings ever.
Fannie and Freddie are two of the strangest
creatures in finance. U.S. taxpayers rescued the
companies from failure in 2008 with a $191 billion
bailout. Since then, they’ve been required to send
the bulk of their profits to the government, but
their shares have continued to trade. Investors
who snapped those up after the collapse could
get a windfall if Fannie and Freddie become fully
private again. On the other hand, investors in
mortgage-backed securities worry about the gov-
ernment stepping away from Fannie and Freddie
and giving no assurance that it will back those
bonds in the event of another crisis.
Calabria insists that he’s tuning this out. “The
law says I have to get Fannie and Freddie out of
conservatorship; it does not say ‘unless some
hedge funds benefit,’ ” he says. “There’s nothing
that says, ‘You shall exit unless Wall Street doesn’t
want you to.’ That is not a relevant consideration.”
Since he took the helm of the FHFA last year,
Calabria, who was previously Vice President Mike
Pence’s chief economist, has spent a lot of time on
the road reassuring people he’s not going to blow
up what amounts to 15% of the U.S. economy. Allies
and foes agree that Calabria, who’s spent most of
his career in Washington, is skilled at knowing
just what to say to pacify the concerns of lawmak-
ers, lobbyists, and housing advocates. But almost
a year after he became head of the agency, he still
hasn’t answered some of the thorniest questions
about what comes next, and he’s fallen behind on
some of his own deadlines.
“If you want things to be durable and stick after
you leave, it takes time,” says Calabria in an inter-
view during a visit to the National Association
of Home Builders annual trade show in January.
The conference is in Las Vegas, and this year a
big draw is a private tour of a 6,400-square-foot
luxury home overlooking the city’s skyline, com-
plete with infinity pool, walk-in wine cooler, and
custom fire pit. As Calabria strolls past the motor-
ized screens that line the mansion’s windows, he
reflects on how 12 years ago Nevada was a hot spot
of the foreclosure crisis that triggered the worst
recession in a generation and forced Fannie and
Freddie to the brink.
“My job is to make sure they don’t fail again in
the next downturn,” Calabria says.THE BOTTOM LINE For many investors, “buying the dip” is already
a part of their habit of investing a little with every paycheck. Those
who want to do more should be sure they can handle more losses.As the director of the U.S. Federal Housing
Finance Agency, Mark Calabria has a relatively
low-profile job. He’s the designated watchdog for
a small group of financial institutions, most nota-
bly the mortgage giants Fannie Mae and Freddie
Mac, which have been under government con-
trol since the financial crisis. But as the Trump
administration moves to take both companies out
of conservatorship, Calabria is for the moment
one of Wall Street’s most powerful and closely
watched regulators.
Billions of dollars in hedge fund bets—and the
fate of a $5 trillion market in mortgage bonds—
could hinge on the decisions Calabria makes in
the coming months. So could the availability of
affordable 30-year mortgages, which Fannie and“My job is to
make sure they
don’t fail again
in the next
downturn”says Darla Kashian, a financial adviser with RBC
Wealth Management in Minneapolis.
Shifting some money into bonds can lower your
volatility, but they aren’t obvious bargains in this
market either. Investors in plain-vanilla bonds have
been riding their own bull market: This year through
March 3, Treasuries have returned about 5.8%,
according to the Bloomberg Barclays US Treasury
Index. If interest rates turn back up, bonds will fall
in value. And for retirees and other investors who
aim to buy debt and hold it to maturity, they’re lock-
ing in very low yields by buying now. That’s not to
say bond prices can’t still rise or that yields can’t fall
further: There’s more than $14 trillion worth of debt
around the world with negative yields.
Kashian says a good thing about the market chaos
is that it opens a conversation with clients: “Do we
still really believe what we believed before, and are
we in consensus about goals and objectives?” Or, as
she puts it more bluntly, “What are you really afraid
of ?” �Suzanne Woolley and Liz Capo McCormick