Mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC) — still on the federal government’s dole since the 2008 financial crisis — likely won't be released from conservatorship anytime soon, says DoubleLine's Andrew Hsu.
Fannie and Freddie are an emblem of the burst housing bubble, and a lingering legacy of the crisis that roiled the world economy.
Since the U.S. Treasury placed Fannie and Freddie into conservatorship in early September 2008, they still operate in a state of conservatorship.
The Trump administration has put forth a plan that would effectively end government control of Fannie Mae and Freddie Mac. Yet Hsu, who’s the co-portfolio manager for DoubleLine's Total Return Bond Fund (DBLTX), doesn’t think that’s a sure bet.
"I think it will happen eventually. I just don' t think it will be anytime soon," Hsu told Yahoo Finance in an exclusive interview.
The housing giants have repaid the billions in bailouts they've received, and they've returned to profitability. But those billions in profits all go directly to the Treasury.
Hsu noted that although Fannie and Freddie are profitable entities, there's a way to go before they're fully re-capitalized.
According to Hsu, part of the reason they won't emerge from conservatorship in the near-term is in the U.S. economy there are "two shining stars:” the consumer and housing. Both would see a negative impact from changes to the status quo, he said.
"Taking these government-sponsored entities and converting them into a private institution could result in higher fees, and that could translate to higher borrowing costs, which would impact the housing market in general,” he said.
“I don't think it's under anyone's benefit at this point in time, especially going into an election year, to really force something to happen. I think it will have to happen naturally,” Hsu added. “And, unfortunately, that's going to take some more time."
That said, as Fannie and Freddie begin ending conservatorship and reducing their footprint, Hsu sees an opportunity for the private markets to grow, especially non-qualified mortgages.
"I do think that market will start to grow as the GSEs slowly reduce their footprint. The Private side could become a very important investment opportunity,” he added.