Big changes may be on the horizon for Fannie Mae and Freddie Mac, two institutions central to the U.S. housing market. Investors are predicting a significant shift in how these mortgage giants operate—with far-reaching implications for homebuyers and the real estate industry.
Why It Matters
Fannie Mae and Freddie Mac play a pivotal role in the housing market, guaranteeing a large portion of the home loans in the United States and helping to keep mortgage rates competitive and accessible for millions of Americans. However, since 2008, they have been under conservatorship due to the financial crisis, which severely impacted their financial health and required government intervention to stabilize the housing market.
President Donald Trump has been vocal in his desire to privatize Fannie Mae and Freddie Mac. During his previous term in office, there were attempts to terminate the conservatorship of these organizations and shift toward privatization, but these efforts weren't successful.
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What To Know
The prospect of privatizing these government-sponsored enterprises (GSEs) is gaining traction. A recent survey by JPMorgan Chase shows nearly half of mortgage-backed securities (MBS) investors expect Fannie Mae and Freddie Mac to be privatized by 2028. If this happens, it could reshape home loans, potentially affecting fixed-rate mortgage availability and affordability.
According to the GSE Survey Results reviewed by Newsweek and conducted from January 16 to January 23, results found that 48 percent of participants expect privatization to occur within the next four years. Another 23 percent believe it will happen during the next presidential administration (2029-2032), while 26 percent expressed doubt that the GSEs will ever be privatized.
Advocates for privatization argue that transitioning the GSEs to private entities could reduce government intervention in the housing market. Critics warn that privatization could lead to higher mortgage rates and reduced access to affordable home loans, especially for first-time and low-income buyers. A shift in their structure might also increase volatility in the housing market, given the GSEs' massive influence.
What People Are Saying
Pershing Square Capital Management CEO Bill Ackman, posted on X in December: "A successful emergence of Fannie and Freddie from conservatorship should generate more than $300 billion of additional profits to the Federal government (this is on top of the $301 billion of cash distributions already paid to the Treasury) while removing ~$8 trillion of liabilities from our government's balance sheet."
"Trump likes big deals and this would be the biggest deal in history. I am confident he will get it done"
Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek: "Privatizing Fannie Mae and Freddie Mac would significantly alter the mortgage-backed securities market, but it's difficult to say if the long-term effects would be helpful or hurtful. In the short term, privatization would trigger the end of a government guarantee both entities have enjoyed for years.
Long term, their success would hinge on if they can be innovative in adapting to housing market conditions to meet the needs of buyers and their loans. Government backing is important, but there are obviously many example of successful lenders who don't have that same feature."
"When the government is backing an entity's products and services, it helps to reduce risk, especially in the generating of loans. Removing it opens the door to higher interest rates for those looking to buy or refinance. It could also lead to more restrictive policies in even getting a loan, as lenders react more cautiously to some buyers. At the same point, it could give increased flexibility for changes to benefit customers in a housing market that's either stagnant or declining. In other words, it's not all bad, but certainly not all good, either."
Kevin Thompson, founder and CEO of 9i Capital Group, told Newsweek: "The primary risk of privatizing Fannie and Freddie is twofold. Without an implicit or explicit government guarantee, investors may demand higher risk premiums, leading to increased mortgage rates. On the other hand, proponents argue that privatization could foster competition and innovation in mortgage lending, potentially leading to new mortgage products and efficiencies, only time will tell."
"One major concern is that privatization could reduce access to mortgage loans for lower-income borrowers, who currently benefit from affordable lending programs supported by Fannie and Freddie. It could become more difficult for borrowers with lower credit scores or smaller down payments to get financing. Some may view this as a potential shift in wealth distribution, making homeownership less accessible for certain individuals."
What Happens Next
Current mortgage rates remain volatile, and changes to Fannie Mae and Freddie Mac's structure could further disrupt these rates, creating challenges for prospective homebuyers navigating an already competitive real estate market.
According to Beene, privatizing Fannie Mae and Freddie Mac will increase mortgage costs in the short term, as the entities will be seen as riskier without government backing. This increased cost might lead to higher mortgage rates. However, this change could also result in lower housing prices, as the higher cost of obtaining a mortgage may reduce demand in the housing market. So far, housing prices haven't dropped, but such a major shift could potentially trigger a decline.
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About the writer
Robert Thorpe is a Newsweek reporter based in Massachusetts. His focus is reporting on personal finance topics, including banking, Social ... Read more