Democrats Alarmed Over Upheaval At Housing Regulator, Fearing Instability

A major shakeup at the top U.S. housing regulator is drawing protests from Democrats, who fear the Trump administration is rushing to privatize the two government-run companies that finance much of the industry.

Selling off Fannie Mae and Freddie Mac, which together back about half the country’s $13 trillion residential mortgage market, could destabilize the already struggling industry and push up borrowing costs, they say.

A month into his tenure, Federal Housing Finance Agency Director Bill Pulte has fired the majority of Fannie and Freddie’s boards while appointing himself chair of each. He dismissed the CEO of Freddie along with two FHFA executives, placed dozens of employees on leave and scaled back or ended a host of climate and minority homeownership initiatives.

While similar upheavals have occurred at other agencies under President Donald Trump, the housing purges come as Treasury Secretary Scott Bessent is floating the idea of transferring the government’s stake in Fannie and Freddie to a newly created sovereign wealth fund — raising all sorts of questions about the administration’s plans.

“My colleagues and I share the concerns of many Americans — costs continue to go up, and these reckless moves by the administration will just make matters worse,” Sen. Lisa Blunt Rochester of Delaware said in an email to POLITICO.

The housing market has suffered for years under the weight of elevated interest rates and a severe shortage of affordable residences. Fannie and Freddie, which were seized by the government to head off their collapse during the 2008 financial crisis, are viewed by supporters as a stabilizing force.

Government control of the two companies has “made the American dream of homeownership more attainable,” said Blunt Rochester, who has been joined by lawmakers such as Sens. Elizabeth Warren (D-Mass.) and Jack Reed (D-R.I.) in voicing apprehension. “With the housing crisis the worst it’s ever been. … The last thing we need is to prematurely reprivatize the enterprises for the benefit of wealthy investors.”

Those in favor of spinning off the two companies from conservatorship say it’s past time to reduce the government’s role in the housing market, and that taxpayers should not be on the hook.

Republicans like Senate Banking Chair Tim Scott are expressing support for what they say are Pulte’s efforts to make the agency work more effectively.

Pulte, a private equity founder and philanthropist with family ties to one of the country’s largest homebuilding companies, last week announced the firings of more than 100 Fannie employees for alleged “unethical conduct” and said FHFA has reduced its “active workforce” by 25 percent in the month since he took over.

Democrats are pressing the regulator to explain those and other actions, in a series of letters.

“Both taxpayers and investors deserve transparency and accountability,” said Reed, who spearheaded one of the letters. “Mr. Pulte has provided neither. He should explain how ousting independent experts and replacing them with inexperienced loyalists beholden to him strengthens the companies.”

Senate Democrats on Tuesday asked the FHFA inspector general to investigate whether Pulte had broken any laws with his board changes and “assess the impact of FHFA workforce reductions on the agency’s ability to fulfill its statutorily mandated functions.” Clarity on Fannie and Freddie’s operations is “essential to the stability of the housing finance system,” they wrote in the letter, signed by Warren and Senate Minority Leader Chuck Schumer, among other lawmakers. The letter was earlier reported by Semafor.

Asked about the Trump administration’s plans for the companies, a representative for FHFA pointed to Pulte’s testimony in his Senate confirmation hearing, when he said releasing them would be a deliberate process.

“While conservatorships should not be indefinite, any exit from conservatorship must be carefully planned to ensure the safety and soundness of the housing market without upward pressures on mortgage rates,” the agency said in a statement.

Fannie and Freddie are not lenders. Instead, they buy mortgage loans and package them into securities for sale to investors, freeing up lenders to make more loans.

Because of their size, even changes at the margins of the companies are closely watched for potential implications for the mortgage market. The recent upheaval itself could threaten the stability of the market, according to Warren, the top Democrat on the Senate Banking Committee.

“President Trump promised to lower costs for American families ‘on day one,’ but his operatives are causing turmoil at Fannie and Freddie that could drive up the cost of home mortgages for everybody,” she said in an interview.

“Congress should hold their feet to the fire: Americans are suffering under the weight of sky-high housing prices and can’t afford any more of this costly mismanagement of the economy,” she added.

Pulte’s move to establish more control could be part of an effort to ready the companies for release, according to Mark Zandi, chief economist of Moody’s Analytics.

“They might be thinking that they have control and maybe they’re thinking about combining the two — it’s easier to IPO one company than two,” he said, stressing that he was speculating.

“One of the impediments to a release is the IPO — these are massive companies, among the largest financial institutions on the planet,” he added. “The thinking might be, ‘Well, we can combine them,’ and it may also dovetail with the objective of streamlining costs.”

But if the objective is to ready the firms for release from government control, Zandi said, it may backfire.

“What it does for certain is create chaos and confusion, and that’s not conducive to a release,” he said. “The result of all this is making it more difficult to go down the release path, in my view.”

Others cautioned that the turmoil should not be over-interpreted.

“The thing I’m trying to urge our members not to do is to take discrete actions and say, ‘Oh, the desired endgame is X’ — I don’t think there is a settled-on endgame,” said Mortgage Bankers Association President and CEO Bob Broeksmit.

“While we don’t see release as a 2025 event, MBA supports a transparent, measured process that includes stakeholder feedback,” Broeksmit said.

KBW Managing Director Bose George, a mortgage finance analyst, said Pulte’s leadership changes do not move the needle on any plans to recapitalize and release Fannie and Freddie.

“The fact that he made these changes suggests he wants to be a little more in control,” George said. “But we don’t see it as a major change on what needs to be done on the privatization front.”

“We definitely expect them to pursue it,” George added. “That being said, the challenges to privatization are pretty meaningful — they need to solve for all these things [and] they need to make sure the market responds in a way that’s not disruptive to the mortgage market.”

Republicans are giving Pulte the benefit of the doubt.

Asked if reducing FHFA’s workforce by 25 percent would make it harder to release the companies, Sen. John Kennedy (R-La.) said, “I think they ought to cut people they don’t need, I can’t give an exact percentage.”

Sen. Thom Tillis (R-N.C.) said he would defer to Pulte on the deliberations.

“Bill Pulte has worked quickly to remove burdensome regulations and restore accountability at the agency” and the so-called government-sponsored enterprises, Scott, the Senate Banking chair, said. “I look forward to continuing to work with Director Pulte on common-sense reforms to increase access to quality, affordable housing across the country.”

The streamlining “indicates to me he wants to run those GSEs like a business,” said Rep. Mike Flood (R-Neb.), chair of the House Financial Services subcommittee on housing.

“There’s probably some value to that,” Flood said.