Today, more than twelve years into conservatorship, the path forward for the reform of Freddie Mac and Fannie Mae, the two government-sponsored enterprises (GSEs), is in many ways as uncertain as it was five or ten years ago.

After a decade-plus of debate in government, the industry, and academia, the Trump administration, starting in September 2019, began the process for the two GSEs to exit conservatorship and be recapitalized by “administrative means” (i.e. without any new legislation) but with the clear intention of keeping in place key reforms developed during the GSEs’ conservatorship since 2008.

Unfortunately, the Trump administration started the process too late, with little more than a year left in its term, so it will not be able to complete many of the key requirements for conservatorship exit and full re-capitalization until a possible second term, which is far from a certainty based on today’s election polls.

In my paper “The Path of GSE Reform: Still Very Uncertain, and Not Just Because of the Elections”, under the assumption that former Vice President Biden is elected, I outline three alternative approaches his administration might adopt. For each, I explain why his policy staff would recommend it be pursued, and make some observations about each. The first, and lowest risk, alternative is no change, i.e. to leave the companies in conservatorship for the time being. The second, a medium-to-low risk alternative, is to end the conservatorships through a patient “administrative means” implementation of what is known as the utility model, where the safety-and-soundness regulator of the GSEs, the Federal Housing Finance Agency (FHFA), also becomes like a public service commission to regulate their guarantee fees, much as utilities have their rates set by such commissions at the state level. The last, and highest risk alternative recommended is a strong progressive program to convert the two GSEs into a single, government-owned corporation, which would require legislation as well as many years for that single corporation to become fully capitalized.

I also explain that a Biden administration will have more ability to control GSE reform, under any scenario it chooses, because of a case now before the Supreme Court, with a decision expected by June of 2021, that probably will allow it to immediately replace the current Trump-nominated director of the FHFA with someone more to its liking, rather than having to wait until 2024 for the current director’s five year term to end.

In examining the three alternatives against the backdrop of a new administration with a long list of goals to accomplish in its first year, I recommend, on a strictly practical basis, staying away from the government corporation alternative for two reasons. First, as it requires so much change, it runs a high implementation risk, which can only work against a Biden administration because of its one-way nature: if the implementation goes well, the homeowning public will hardly notice; but if it goes poorly, the mortgage market disruption could generate major negative political ramifications. Second, the government corporation alternative requires legislation. This would run up against the track record of Congress failing for more than a decade to put in the time needed to develop, and then make the compromises needed to reach agreement about, specific GSE reform legislation. This is especially true in the incredibly complex housing finance field where constructing well-designed legislation is a very heavy lift. Even if the Democrats control both houses of Congress, agreement is far from assured as there are definitely competing views among elected officials from that party about the right way to proceed.

Next, under the assumption that President Trump is re-elected, I analyze how the current effort for the two GSEs to exit conservatorship and become recapitalized is proceeding. Despite being underway for more than a year, the surface has hardly been scratched. There are many key decisions still to be made that can significantly impact their business model (which in turn can materially change their future business prospects in terms of revenues, expenses, and return-on-equity—the single most important measure of success for a large financial institution) and virtually no decisions have been announced about the complex process by which they will be recapitalized. The result is that, even for this alternative, it is still quite uncertain how it will go or what could emerge at the other end.

Should former Vice President Biden win the election, during the subsequent lame duck period until his inauguration, the FHFA under its Trump-appointed director and the Trump Treasury might undertake some GSE reform steps; in the paper I summarize four such possibilities. They range from non-controversial to very controversial, and possibly could restrict an incoming Biden administration’s policy choices.

The conclusion is that the path of GSE reform—twelve years after the two companies were placed into conservatorship—is still very much an open question. One can only hope the next twelve years go better.