Economist describes how bank regulators will look to avoid a repeat of First Republic and Silicon Valley Bank collapses
While it remains unclear what changes await Fannie Mae and Freddie Mac as the Trump administration weighs a potential IPO of the mortgage giants, a prominent senior economist is urging care and caution throughout that process to avoid undue stress on bank balance sheets.
Mike Fratantoni (pictured top) is the chief economist and senior vice president of research and business development at the Mortgage Bankers Association (MBA). He said that theoretically, changes to the government-sponsored enterprises (GSEs) could happen quickly. But he is also hopeful that time will be taken to get the changes correct.
“The quickest way for them to make changes is to revise the preferred stock purchase agreements,” Fratantoni told Mortgage Professional America. “Those are agreements between the Treasury and FHFA and the GSEs. Rewriting or revising those contracts could happen fairly quickly. But given the dollars involved and the potential economic impact, I expect they will take the time to do it the right way.”
He notes that there are so many government agencies that have a vested interest in what would happen with the GSEs that he believes many different experts will be involved in the process.
“They're likely going to tap into expertise across the government,” Fratantoni said. “At the Treasury and FHFA, at the Fed, some of the other financial regulatory agencies, and the SEC, because it really touches on all those spots.”
Avoiding another 2023
If there is a disruption with Fannie and Freddie during this process, some loans may end up going to other places, like FHA and Ginnie Mae. However, other loans may be kept on the primary market, which Fratantoni believes will draw extra attention from bank regulators.
“I mentioned the SEC, because, if there's some sort of disruption in the conventional market, you might see more of a need to go to the private label portion of the market,” he said. “And if more winds up on bank balance sheets, bank regulators are going to have a view on that and particularly remembering back to 2023 and the challenges with First Republic and Silicon Valley Bank.”
In 2023, two major banks failed. Silicon Valley Bank failed on March 10, 2023. It was the third-largest bank failure in United States history. First Republic Bank followed on May 1, 2023.
Because those bank failures are still fresh in the minds of regulators, Fratantoni believes they would like to avoid a scenario where banks hoard mortgages normally sold on the secondary market. This is just one reason why he thinks the changes to Fannie and Freddie will require time and patience.
“You probably wouldn't want a world where a ton of long-term fixed-rate mortgages are on bank balance sheets,” he said. “So, lots of different viewpoints to sort of reconcile. We would repeat our advice that this needs to be done really, really carefully and methodically. We have a big market to be concerned about here. We want to make sure it doesn't get disrupted.”
To prevent banks from holding a large amount of fixed-rate mortgages, Fratantoni suggests that FHA and Ginnie Mae may secure a larger percentage of loans.
“FHA has to be ready to catch the ball,” he said. “If there is a disruption, you could see even more business flowing into the FHA and the Ginnie Mae part of the world if rates spike in the conventional market. I think in the market environment we're in, more of those, particularly first-time buyers, just need access to the flexibility that FHA provides.”
Staying informed
One thing Fratantoni doesn’t believe will be an issue is potentially big banks investing in the new IPO in exchange for favorable treatment on the secondary market.
“I think the Congressional charters go a long way towards addressing that concern,” he said. “They have this obligation to be in all markets at all times. I'm not an investment banker, but my understanding is that an investment banker gets paid a percentage of the value of the deal, and this is going to be a big deal, when, and if it happens. I can understand why they would want to be part of that conversation.
“They wouldn't want to be excluded from the potential group of investment bankers involved, but I don't see a direct connection to them benefiting in terms of their mortgage businesses.”
Mortgage attorney Marty Green explains how this move, if it comes to fruition, could create synergies and provide greater certainty to the mortgage market, which could lead to lower rates. However, others warn it could spike costs for homeowners.https://t.co/eeWHiFLFdf
— Mortgage Professional America Magazine (@MPAMagazineUS) August 14, 2025
Fratantoni’s message to mortgage brokers during this time of potential change is to stay informed. He also believes that brokers should be ready for more rate fluctuations during any transition of the GSEs.
“I think it is important for them to stay informed,” he said. “This is one of the key topics that impacts our industry. The MBA is out there with minute-to-minute information on any breaking news. This is a period of heightened financial market volatility. August has been a little bit better, but the rest of the year, we have seen rates jumping all over the place.
“I think getting yourself ready that we could see more of that as we enter the fall, and these headlines are going to lead to some additional fluctuations in rates. The goal is to find an endpoint for the next phase of the journey that keeps markets relatively calm.”
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