Last Wednesday, Aug. 19, Fannie Mae fired roughly a dozen senior officials, according to multiple media reports. On Friday, The Wall Street Journal broke the story, describing anxiety in the mortgage industry over whether "Fannie's ability to provide stability to prices and activity could be hampered," in The Journal's words.
Fannie Mae is a linchpin of the mortgage industry. Together with its counterpart Freddie Mac, the two organizations are responsible for nearly half of the mortgages in the country, according to Barron's.
"Fannie Mae and Freddie Mac play a pivotal role by buying up mortgages and packaging them to sell to investors, guaranteeing the investors payments even if borrowers default," said The Journal. "This empowers U.S. lenders to make more 30-year fixed-rate mortgages."
Fannie and Freddie are both government-sponsored enterprises (GSEs). The taxpayer ultimately guarantees them through backing assured by the U.S. Treasury, and they operate under congressional charters. At the same time, they are closely regulated by the Federal Housing Finance Agency (FHFA) and its director, Bill Pulte.
Who's Gone? And Why?
Following up on Friday, Scotsman Guide identified several of those who had lost their jobs:
- Mark Palim, chief economist
- Chuck Walker, chief operating officer of Fannie's multifamily business
- Devang Doshi, senior vice president of capital markets
- Brian Hansen, chief financial officer of Fannie's multifamily business
- Dana Brown, vice president of low-income housing tax credit customer management
A source familiar with the situation told The Guide that they "attributed the layoffs to much of the work now being done by artificial intelligence."
Some may find that surprising. While AI may be slowly improving productivity in routine roles, we haven't heard of it wholly replacing such senior people elsewhere.
The Guide appeared to question the timing of the firings, which occurred less than a week after the now-terminated Chief Economist Mark Palim published Fannie's August mortgage finance forecast.
That document predicted that rates for 30-year fixed-rate mortgages would average 6.8% during the last quarter of this year and 6.7% through the whole of 2027. Those numbers are much higher than many politicians would like, especially in the run-up to midterm elections.
FHFA Director Pulte is known for cutting headcounts. "In his first months at the head of the Federal Housing Finance Agency, he oversaw hundreds of firings at the agency and at Fannie Mae and Freddie Mac, and replaced both organizations' chief executives," reported Michael Scherer in The Atlantic on Friday. "He boasted of overseeing five rounds of layoffs during his six-week stint as acting director of national intelligence that eliminated the staff by about 30 percent."
What Consequences Might There Be?
At first, Fannie Mae's stock price fell on the news, but recovered somewhat later. "The stock had been up as much as 2.3% earlier in the day but gave away most of its gains shortly after 2 p.m., according to Dow Jones Market Data. It bounced back to close up 1.62% at $6.29," said Barron's on Friday.
Better yet, Barron's said, "Bond market watchers said the news of the departures did not appear to have an effect on mortgage bond trading." It is the yield on mortgage bonds (aka mortgage-backed securities) that are a primary driver of mortgage rates.
So, the all-important bond markets seem to be taking a wait-and-see stance. Still, some are concerned about how the loss of talent and experience might affect Fannie's operational capabilities.
"The personnel shakeup comes amid rising Treasury yields and surging borrowing costs, fueling market concerns that Fannie Mae's ability to maintain price stability and trading liquidity in the mortgage market could be compromised," suggested Big Go Finance on Friday night. "Fannie Mae and Freddie Mac guarantee nearly half of all U.S. residential mortgages, making their operational stability directly tied to the overall health of the housing finance system."
Meanwhile, one mortgage industry veteran told The Scotsman Guide, "A brain drain of qualified, experienced people could adversely affect Fannie Mae's ability to respond to market developments, monitor risk or execute on mortgage purchases - at a time of rising mortgage rates and continued homeownership affordability challenges."
Let's hope that a combination of AI and the remaining staff is up to the task of keeping Fannie and the mortgage market stable. Nobody should be indispensable within an organization, so there are grounds for some optimism. Still, losing 10 or 12 key players in one fell swoop does seem an unusual choice.
