FSOC's Activities-Based Shift Is Quietly the Most Bullish Signal for GSE Reform in Months

March 26, 2026 — Today the Senate Banking Committee GOP announced that FSOC is proposing new guidelines that adopt an activities-based approach to financial stability oversight. Treasury Secretary Scott Bessent said it plainly:

"Today's proposed guidance would return the council to prioritizing an activities-based approach where we focus first on risks that arise from specific activities and practices across markets, rather than single out individual firms."

Read that again.

This isn't about Fannie Mae and Freddie Mac directly. FSOC doesn't designate the GSEs — FHFA regulates them. But the philosophy embedded in this proposal is the exact same philosophy that needs to be applied to end the conservatorships. And the people proposing it are the same people who will have to sign off on GSE reform.

Why This Matters for GSE Shareholders

Here's the connection most people are missing:

1. The Activities-Based Approach Undermines the Case for Conservatorship

The entire justification for keeping Fannie and Freddie in conservatorship for 18 years has been entity-based thinking: these two firms are so large, so systemically important, so inherently risky that they must be controlled by the government indefinitely.

FSOC just said that's the wrong framework.

The new guidance says: focus on activities and practices across markets, not on singling out individual firms. Apply designation only as a last resort when activities-based approaches can't address the risk.

Now apply that logic to Fannie and Freddie:

• The activity is guaranteeing mortgage-backed securities
• The risk is concentrated credit exposure to the housing market
• The activities-based solution is proper capital requirements, stress testing, and regulatory oversight

Sound familiar? That's literally what the ERCF was supposed to be. The capital framework already exists. The stress tests already exist. FHFA already has the regulatory authority. The activities-based solution is already built.

The only reason to keep the conservatorship is entity-based thinking — the idea that these specific firms are too dangerous to be private. FSOC just rejected that framework for every other nonbank financial company in America. The intellectual inconsistency of maintaining it for the GSEs just got a lot harder to defend.

2. Cost-Benefit Analysis Is Now Required

The new FSOC guidelines require a formal cost-benefit analysis before designating any firm as systemically important. This is enormous.

Apply this standard to the conservatorship:

| Cost of Conservatorship | Benefit | |------------------------|---------| | 18 years of suspended shareholder rights | "Protecting taxpayers" | | $301 billion swept from GSEs to Treasury | Financial crisis repayment (already repaid 2x over) | | $312 billion ERCF capital requirement designed to prevent exit | "Ensuring safety and soundness" | | Suppressed competition in secondary mortgage market | Government control of housing finance | | Zero preferred stock dividends since 2008 | None — dividends were suspended, not redirected |

If FSOC has to do cost-benefit analysis before designating a nonbank as systemically important, why doesn't FHFA have to do cost-benefit analysis before maintaining a conservatorship that has cost shareholders $301 billion?

The answer is that nobody has forced them to. Yet.

3. The "Off-Ramp" Provision Is the Template

The new FSOC framework includes an off-ramp provision: before designating a firm, FSOC must identify remedial steps the company or its regulators could take to mitigate the risk, and give them time to implement those steps.

This is exactly what GSE reform needs. The off-ramp for the conservatorship is:

1. Recapitalize to a reasonable level (not the $312 billion ERCF fantasy — the $120-135 billion the stress tests actually suggest)
2. Restructure the preferred stock (convert, recap, whatever gets it done)
3. Release from conservatorship with proper regulatory oversight in place

The off-ramp exists. The capital is building ($179.4 billion combined net worth as of year-end 2025). The regulatory framework exists (FHFA + ERCF, even if ERCF needs rework). The only missing piece is political will.

4. Tim Scott's Priorities Align Perfectly

Senator Tim Scott, chairman of the Senate Banking Committee, has been clear about his priorities: transparency, clear standards, and growth. Those are the exact words the Banking Committee GOP used in today's announcement.

Apply those three words to the GSE situation:

• Transparency: The conservatorship is the opposite of transparency. FHFA operates with minimal Congressional oversight. The net worth sweep was conducted in secret. The capital requirements were set without public cost-benefit analysis.
• Clear standards: What are the clear standards for exiting conservatorship? There are none. No published criteria. No timeline. No off-ramp. Just "we'll know it when we see it."
• Growth: Fannie and Freddie in conservatorship cannot grow, innovate, or compete. They can't raise private capital. They can't issue new preferred stock. They're frozen.

Scott's framework for FSOC reform is the framework for GSE reform. The question is whether he applies it.

What Needs to Happen Next

This FSOC proposal has a 45-day public comment period. Here's what I'd argue in a comment letter:

1. Apply the activities-based framework to FHFA's regulation of the GSEs. If FSOC is moving away from entity-based designation, FHFA should move away from entity-based conservatorship.

2. Require FHFA to publish a cost-benefit analysis of continued conservatorship. If FSOC has to do cost-benefit before designation, FHFA should have to justify the costs of the longest conservatorship in American history.

3. Mandate an off-ramp with clear criteria. Capital threshold, timeline, and conditions for release. No more open-ended "indefinite conservatorship."

4. Rework the ERCF to reflect actual risk. The $312 billion capital requirement is 2.3x what the GSEs' own stress tests say they need. An activities-based framework would set capital requirements based on actual risk of the activities (mortgage guarantees), not on making the number so high that exit is impossible. I wrote about this in detail yesterday.

The Bigger Picture

This administration is methodically dismantling the regulatory framework that was built to prevent private capital from operating in spaces the government wants to control. FSOC's activities-based approach is part of that. The March 2026 executive order on mortgage credit is part of that. The conversations happening at FHFA about ERCF rework are part of that.

None of these individually end the conservatorship. But together, they remove the intellectual, regulatory, and political scaffolding that has kept it in place for 18 years.

The people who set the rules just said: don't single out individual firms. Focus on activities. Require cost-benefit analysis. Provide an off-ramp.

That's the blueprint for ending the conservatorship. They just applied it to everyone except Fannie and Freddie.

For now.

My Position

I hold Fannie Mae and Freddie Mac junior preferred shares across 26 series in four accounts. I've been in this trade since 2016. My full trading analysis — every ticker, every price, 2,068 transactions — is public. My worst trades are public too (options record: 1-8, pain meter included).

I am biased. I am also right about the direction this is heading.

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Disclosure: Long FNMAS, FMCCS, FMCCJ, FMCCM, FMCCN, FMCCP, FMCCT, FNMFN, FMCKI, and others across individual, Roth IRA, and SEP IRA accounts. This is not financial advice. I am not a financial advisor. I am a guy who parsed his own Schwab transaction exports and put them on the internet with a pain meter.