President Donald Trump’s plan to privatize mortgage giants Fannie Mae and Freddie Mac risks pushing U.S. homeowners’ monthly payments even higher, experts told Newsweek, further exacerbating the affordability crisis in the country.
The president said in a post on Truth Social on Wednesday that the time now seemed “right” for such a move, which he previously attempted in 2019, at the end of his first administration. But experts fear that the move, though it offers an opportunity for the federal government to receive a much-needed injection of cash, would disrupt the already fragile U.S. housing market.
Why It Matters
Fannie Mae and Freddie Mac, currently under the supervision of the Federal Housing Finance Agency (FHFA), play a crucial role in the U.S. mortgage market. The two firms, which buy mortgages from lenders and repackage them for investors, guarantee about 70 percent of the mortgages made in the country for about $16 trillion.
Any effort to privatize the two companies, reducing the federal government’s involvement and shifting risk to financial investors, could have massive consequences on U.S. households. The most immediate risk of such a move is to raise mortgage rates, now hovering close to the 7 percent mark, even higher—a painful blow to aspiring homebuyers and homeowners in the country.
What To Know
Fannie Mae and Freddie Mac were bailed out by the government during the housing crisis of 2008, nearly 17 years ago. Trump has long wanted to make them private businesses again and promised to follow through if elected in 2024.
On Wednesday, the president wrote on Truth Social that he was giving “very serious consideration” to the idea, saying he will speak to “Treasury Secretary Scott Bessent, Secretary of Commerce Howard Lutnick, and the Director of the Federal Housing Finance Agency, William Pulte, among others, and will be making a decision in the near future.”
Andrew Harnik/Getty Images; Kevin Dietsch/Getty Images
The president said the time is now right for such a move, as “Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH.”
Hedge fund managers and investors who own shares in the two firms have been vocally in favor of privatizing them. However, experts say the impact of privatizing the two companies could be highly disruptive for the mortgage market.
A Risky Move For Mortgage Rates
Greg McBride, chief financial analyst at Bankrate.com, told Newsweek that the impact this move could have on mortgage rates will depend on “whether the government provides an explicit guarantee to bond investors that they will backstop Fannie and Freddie should either run into trouble again. “
“Without it, mortgage rates would likely rise as bond investors command a higher risk premium, but with an explicit guarantee, any impact of privatization on mortgage rates is minimal,” he said.
Danielle Hale, chief economist at Realtor.com, told Newsweek that privatizing Fannie Mae and Freddie Mac “is likely to push mortgage rates higher, but how much and for how long will all depend on the way that they are privatized.”
She explained that investors currently benefit from the government backing of Fannie Mae and Freddie Mac securities.
“Without that backing, these investments are somewhat riskier and would likely require a higher risk premium, meaning that rates would rise,” Hale said.
What People Are Saying
Greg McBride, chief financial analyst at Bankrate.com, told Newsweek: “This is an opportunity to monetize the government’s stake in both entities, providing a much-needed influx of cash at a time of $2 trillion annual deficits. Getting them out of federal conservatorship and standing on their own two feet was the objective all along; it has just taken many more years than expected.”
Fannie Mae and Freddie Mac shareholder Tim Pagliara, chief investment officer at CapWealth, an investment firm in Franklin, Tennessee with over $1.8 billion in assets, told Newsweek in a statement: “An IPO of these entities could net the government over $250 billion, which are proceeds that can be used for a variety of initiatives, including the financing and construction of more homes in the U.S.
“There is still a nationwide housing shortage and the proceeds from a Fannie Mae and Freddie Mac IPO could help to finance a solution to this shortage.”
While the two mortgage giants were put under government control back in 2008, during the housing crisis, “nearly 17 years later, there is no more crisis, and there is no reason for the government to still be running these entities,” Pagliara said. “It’s time for a public market handoff.”
Gary LaBarbera, president of the Building and Construction Trades Council of Greater New York and member of the Housing for U.S. coalition, said on Wednesday: “President Trump is right to free Fannie and Freddie. But even better, let’s use the proceeds—some $250 billion—to build middle-class housing for American workers by American workers. Housing for U.S. stands ready to work with President Trump to make it happen.”
Bill Pulte, head of the FHFA, told CNN in March: “Fannie and Freddie shouldn’t be in conservatorship forever. But it’s critical to ensure any discussion about exiting conservatorship needs not only to ensure safety and soundness but how it would affect mortgage rates.”
What Happens Next
While McBride thinks Trump’s plan to privatize Fannie Mae and Freddie Mac could be good for the government, he sees as clear risk in it of the country ending up “back in the same boat in a future crisis, where the government has to step in and take ownership of the firms in order to keep credit flowing.”
“The odds of that are never zero, but stringent safeguards and supervision will keep the odds low,” he said.
“If there is sufficient investor demand to fill the government’s shoes as they dispose of their stake, it will fly. But the sheer size of both entities means there will need to be a deep pool of capital wanting to buy,” McBride said.
Hale expressed concern over the impact such a move could have on the U.S. housing market, which is already facing historically elevated mortgage rates and slower home sales.
“Any additional increase in mortgage rates at this point in time is likely to further challenge buyers and reduce home sales,” she said.
Trump is likely to weigh the risk of bringing mortgage rates up carefully, as any move that would make housing even less affordable for Americans could be politically damaging for the president.
