- 4 months ago
On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about Trump’s plans to IPO Fannie and Freddie and the latest on the Federal Reserve.
Related to this episode:
Trump plans IPO for Fannie, Freddie later this year | HousingWire
https://www.housingwire.com/articles/trump-ipo-fannie-mae-freddie-mac-conservatorship-fhfa/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
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.
Related to this episode:
Trump plans IPO for Fannie, Freddie later this year | HousingWire
https://www.housingwire.com/articles/trump-ipo-fannie-mae-freddie-mac-conservatorship-fhfa/
HousingWire | YouTube
https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q
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.
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NewsTranscript
00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about Trump's plans to IPO Fannie and Freddie and the latest on the Federal Reserve, all of it designed to give us more insight on mortgage rates. Before we start, I want to thank our sponsor, Optimal Blue, for making this episode possible. Logan, welcome back to the podcast.
00:26Stephen Myron is now on the Fed board.
00:32Okay, so you were hoping for Neil Detta. What do you think about this pick?
00:36You know, I sat there and I was just like, I understand why Trump did this, because Trump wants his loyalist people.
00:49And he believes, you know, Myron can, at least in the Fed board meeting, be very aggressive in fighting back because he's a Harvard guy.
01:03But Myron is also the person that said, well, when we when we do tariffs, the dollar will get stronger.
01:10And that didn't work out. Well, I don't think I know. I do believe the White House's policy is for a lower dollar.
01:18So I don't think it's, you know, a bad thing for Trump, but he's not a Fed person, you know, he's just not.
01:30And it's just this is a loyal loyalty pick.
01:33Like, I would have preferred Neil Detta, a more market person.
01:39But this is going to be one of the OK, he's always going to be he I mean, he was so against the rate cuts just in October of last year.
01:48You know, and now he's, you know, wants if he's advocating for Trump's emergency rate cuts and he'll he'll say that it's there's some supply initiatives that are going to, you know, be beneficial against inflation.
02:04But it's just it's just to me is just a loyal loyalty pick here.
02:07And he's there is another vote dissent out there.
02:11So so for the for the week count, you had Cook, you had Daley, you had Kashkari.
02:18One of the more hawkish Fed presidents from Kansas City went from there should be no rate cuts at all to, OK, the market is kind of balanced and the labor data is, you know, we need to keep an eye on.
02:31So there's there's a there's a tone that's very different now, but it's also inflation week.
02:39So we get to see how the market starts to react because the 10 year yield went all the way down, hit that key technical level.
02:46It's almost like a baby Gandalf line.
02:49We've tested here a few times.
02:50The only time it ever broke was Godzilla tariffs.
02:53And we keep bouncing off that.
02:54But as even though we went up 10 basis points, really, from the lows, mortgage rates are still at year to date lows because the spreads are good.
03:03But I think it just it really is going to put a big battle coming up in September.
03:11But if Jackson Hole and Powell probably toned down his his hawkishness and probably guide for a cut, unless unless the inflation data is just too much for him and CPI is more service inflation.
03:27So I don't know if you're going to get it from that report.
03:29So to be clear, this is for a seat on the on the board.
03:34This is not the shadow Fed.
03:35It's not the next Fed chair, which hopefully.
03:39Yeah, hope.
03:40Hopefully by the time this podcast comes out, he announced Chris Waller as the next Fed chair, which, you know, that's the big whale.
03:49That's what you want.
03:50If you had to pick one that you wanted somebody that's that's market oriented, that will go both sides of the tail.
03:58He's he's the one I think there's just there's so much negativity around Kevin Warsh or Hassett doing it, that if the mark if you pick someone like that and the market just doesn't go for it, there's nothing you can do.
04:13You can't fire him like you can't like Trump can't fire the Fed chair.
04:17And this person has to be a guider because he's got to take the job next May.
04:23So Waller's there.
04:25They probably have enough enough dissents, enough votes for cuts in the next next meeting.
04:31But again, so much of this economic data.
04:34Right. You know, people were talking about, oh, we might hike rates after what Powell said.
04:39And all of a sudden the jobs report came in and changed everything.
04:43So we'll take it one economic report at a time.
04:47But of course, the dynamics have really shifted here recently.
04:51OK, so the big news today from a news standpoint was the fact that the Wall Street Journal reported that Trump is he's he is now preparing.
05:00He is the plans are in place to IPO Fannie and Freddie this year.
05:06So it's we knew he wanted to do this.
05:09The news on this is that that it feels like there's a there's a pathway for the end of this year, which I think is surprising for most people.
05:16What do you think?
05:17It does look like even if they go IPO, there's going to be kind of some form of guarantee.
05:25I don't know how they're going to term it, you know, explicit, implicit or partnership, whatever it is.
05:32Now that rates have gone a little bit lower, I don't think they want to touch that, you know, and they keep it some form of government protection on it.
05:43Because it's just he's not he's only selling a piece of it.
05:47So it's not like, you know, it's going to be how some people take just completely take him out of government conservatorship and let him let him go out there freely.
05:57And there's no government backing.
05:59So, again, I've been very consistent on this for 10 years.
06:04I prefer them in conservatorship because they're too big.
06:07And when you're dealing with something too big, if something goes wrong, right, and then you have to spend a lot of time trying to fix it.
06:15But this is why I think there's going to be some some form of guarantee.
06:19And probably they've done their homework where they've asked everyone, are you guys going to freak out if we do this?
06:27You know, our spreads are going to get worse and stuff like that.
06:30So now that mortgage spreads are getting better, I'm just assuming the cent and everyone kind of got the A-OK that if you if we say this and we do this, we could do this IPO and not have the markets be interrupted at all.
06:45So I do think the Trump administration, every time they've talked about this possibility, they do say we're going to do it in a safe and sound manner.
06:53So that's been one of their talking points to try to reassure the markets.
06:57Yeah, you should always be mindful if you have to constantly tell people, we'll do it in a safe way, you know, everyone trying to try to make people the tightrope in a very safe way.
07:09OK, you know, so.
07:13So, you know, take a step back.
07:14We have a lot of listeners that may not, you know, the lenders obviously know Fannie and Freddie really well.
07:20If you're out there and you're maybe not in that camp and you're like, what what difference does it make to the housing market?
07:26Like, how could this affect us in mortgage land, housing land, whatever?
07:31What is this? What does this mean for me?
07:33One of the greatest creations in the history of the United States of America has been Freddie and Fannie because they can go out there and buy 30 year loans where other countries don't have the plumbing.
07:43So think of this as Godzilla and King Kong. Right.
07:46And because you have Godzilla and King Kong, you could have 30 year fixed mortgages, be relatively priced and you have the backing of the United States government.
07:54It's the greatest. It's one of the greatest unfair advantages we have in human civilization.
07:59So I don't want to touch it.
08:01It's just because if you take it out, then then the risk rises.
08:04So you have to charge more for I mean, I mean, there there there's there's an inherent risk that if if things go bad, you know, pricing could be hit or credit can get tighter where that was in the case in COVID.
08:18Right. You remember the COVID-19 recovery model and everybody said, well, credit is about to get tight and, you know, home sales are about to get hit hard, even though mortgage rates are low.
08:29And I said, well, if Freddie and Fannie are in conservatorship, you don't have to worry about that.
08:34You know, so my judgment is that it does appear that they kind of didn't want to take them out of conservatorship and out of government.
08:42So the whole purpose of like get him out of the government, you know, I don't think that's the case.
08:47But we had a very, very effective system that is the envy of not only planet Earth, but the universe.
08:57And I'm thinking there's a lot of things you could probably change.
09:00This wasn't one of them, but they're going to do it.
09:03So we have to model stuff out when it happens, figure out what's going on and how the how the spreads and everything.
09:10So it's a whole brand new set of variables when we go out there.
09:14But for the for the immediate time, it should be fine.
09:19It's always when all hell breaks loose.
09:23Right.
09:23That's that's that's always the concern.
09:26And, you know, we had all hell broke loose during COVID and it was flawless.
09:30And again, the unsung hero of the United States of America, you know, was the man who read Freddie and Fannie back during COVID.
09:41And, you know, when we think about government coming in and helping American citizens when they needed to, that was it.
09:48So, Mark Calabrio, if you're listening, I salute you as a proud representative of the United States government and helping, you know, the American people during COVID.
09:59So this was one of the things that you really brought home to me in COVID was that the fact is that that they didn't have to answer to shareholders meant that they could easily pivot so that, you know, the whole the whole industry benefited.
10:12Because if they had to, you know, come up with a profit for shareholders, that whole 20, 21, 22, that whole thing would be different for the housing market.
10:22There are a lot of things that should have, you know, shareholder priority.
10:29This is not one of them.
10:31So but I understand the appeal.
10:33I mean, these two make a lot of money, right?
10:36And they are giants and they are, again, the envy of the world.
10:41I know my counterparts across the world, just like they hate this because they can't they can't replicate it.
10:48There is no Freddie and Fannie out there.
10:50There's no plumbing like we have here.
10:52So but I always tell people it does appear they're not going to like just rip them out of the conservatorship.
10:59And they're, you know, this is some libertarian fantasy that Mad Max beyond Thunderdome, everyone trying to get gasoline and water and survive out there.
11:09So so so that's good.
11:12I like that silver lining.
11:14It won't be Mad Max.
11:15That's a silver lining.
11:17OK, well, let's talk about it from this from what has the market.
11:22How did the 10 year yield react once that news came out?
11:25I it's it's not something that can move, move the 10 year yield or anything now.
11:31It's just that, you know, I've always I've always thought this when when I study Trump, Trump does a lot of test balloons.
11:39And this could be one of the test balloons to maybe see the market appetite, because to me, it's this there should be a very healthy appetite for this type of IPO.
11:51So and you will get more clarity going down the line with more officials.
11:57But I always take the first three or four things that he says more as test balloons before they actually become something.
12:04So it's something that everyone could keep an eye on going out of the future.
12:09It looks like this will be the case.
12:11But, you know, now that things have calmed down a little bit more, spreads have gotten better.
12:17The 10 year yield is a little bit lower.
12:18We're we're this is probably the time to maybe announce something like that.
12:22We just talked about spreads yesterday.
12:24We're so excited about them.
12:26So it was it was really fun.
12:28This week was fun.
12:29I thought for the first time, a lot of people kind of understood, you know, the spreads are getting better.
12:33So when the 10 year yield on days that go up now, you know, they don't get hit as much.
12:38And we had a 10, 11 basis point move from the lows on the 10 year yield.
12:44And we're pretty much at year to date lows because the spreads are acting.
12:47That's one of the things we try to highlight that it's not just good going down, but it's also on the days that the bond yields go up.
12:53It typically gets better right now.
12:55As long as the market is volatile and the Fed is still focusing on rate cuts, you could you get a little bit more better spreads out there.
13:01So we're kind of we're past the halfway positive point.
13:07So we we got a good chunk back from the highs of 2023.
13:10So that that in general is a very, very positive story for the for the United States, but also for the housing market.
13:17OK, so we have talked about the Fed.
13:19We have talked about Fannie and Freddie.
13:21We've talked about mortgage spreads.
13:22What else are you paying attention to right now?
13:24Well, for now, it's you know, now that we're below 6.64 percent, we everyone gets to read the tracker data.
13:33You know, both times that we've seen rates get below that level, if they head towards 6 percent, it does materially change the supply and demand equilibrium that we can see it.
13:44I know last year I was wrong with my price forecast.
13:48I was too low, but I could see it because rates were going down to six.
13:52The supply and demand equilibrium changed so much.
13:54I mean, I'm expecting some of our data to show negative year over year home prices just because home prices were really firmed up toward the end of the year, kind of October, September,
14:08which is which is kind of abnormal. But that was a time where rates came down and again, supply and demand equilibrium, the slope of the curve,
14:16these things that are like legitimate economic things out there, you get to see it happen fresh weekly.
14:23And that's just, you know, going out for the rest of the year.
14:25Of course, if mortgage rates go back up above 6.64, then, you know, it's it's not not as relevant.
14:31But it is going to be interesting now because there's so there was so much discussion that mortgage rates here to year date lows and it's a little bit more calmer.
14:39So we'll see. We'll see how we'll see how it goes.
14:43If we can get to 6 percent, it's a little bit easier now this year with better spreads than it was last year.
14:50Logan, thank you so much. Appreciate you. As always, we will talk again soon.
14:54Pleasure, Sarah Wheeler.
15:01Pleasure, Sarah Wheeler.
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