This is what Fannie Mae, Freddie Mac privatization means for your mortgage

Fannie Mae and Freddie Mac (two huge mortgage finance companies managed by the federal government for nearly 17 years) could be sold to the private sector.

During President Donald Trump’s first term, the White House tried to release the Federal National Mortgage Association, known as Fannie May, and the Federal Mortgage Corporation, known as Freddie Mac, to the private market. Experts say it didn’t come true due to complexity.

Trump hasn’t spoken about the idea of ​​selling government stocks to the private market, but the topic is bubbly in Trump’s second term. That could lead to higher mortgage rates and risk for investors, experts warn.

In January, the Federal Housing Finance Agency and the Treasury agreed to amend the senior preferred stock purchase agreement between the Treasury Department and government-sponsored companies Fannie Mae and Freddie Mac, and the other parents. We have secured final release.

Experts are torn apart as to how GSE releases will be handled, when they will occur, and whether the government will continue to oversee the post-mortem mortgage giant somewhat.

Ultimately, the release from Fannie Mae and Freddie Mac’s government support comes down to what Trump prioritizes his second term. And yet, there may be some drawbacks, experts say.

“We’re excited to be able to help you get the better of our customers,” said Mark Zandy, chief economist at Moody’s Analysis.

“Even so, it turns out that economics doesn’t make sense, so I think they’ll be repelled from actually achieving it,” Zandi added.

Here’s what you need to know.

It depends on the level of government support after Fannie Mae and Freddie Mac are released, according to Andy Winkler, director of housing and infrastructure projects at Bipartisan Policy Center.

Experts say the Trump administration’s ability to navigate logistics, legal and economic hurdles will also be a factor.

But “a lot of things can be wrong,” said Susan Wachter, a real estate professor and finance professor at the University of Pennsylvania Wharton School.

If things don’t work, mortgage interest rates can potentially rise, experts say. Zandi believes, “It’s a question of how expensive it is.”

When investing in mortgage-backed securities or secured obligations from Fannie Mae or Freddie Mac, the parental end could pose more risky, Zandi said.

“Therefore, you’ll be asking for a higher interest rate to compensate for that risk, so the mortgage rate will also be higher,” Zandi said.

Of course, higher fees mean higher mortgage borrowing costs.

In 2024, more people bought their homes with full speed payments, but most Americans still rely on mortgages to buy their property.

According to a report by the National Association of Realtors, around 26% of US home buyers paid full speeds in 2024, paying the new highs for the segment. By comparison, the last record increase was up 22% in 2022 and 9% from 2021, rising with each data provided to CNBC.

However, in 2024, around 74% of buyers funded the home purchase, NAR found. This is down from 80% a year ago.

In Zandi’s view, the release scenario could affect all involved parties, except potentially Fanny and Freddie shareholders.

“They’re going to make money on the stocks they own… so they’re pushing for it,” he said.

Fannie May and Freddie Mac buy existing mortgages from mortgage lenders. Companies maintain or sell loans to investors as mortgage-backed securities and create a system in which mortgage lenders have enough capital to continue to provide the loan.

“Thirty-year fixed-rate mortgages may not exist without them,” said Winkler of Bipartisan Policy Center.

According to NAR, the companies support around 70% of the mortgage market, making them essential to the U.S. housing system.

Zandi said the two were created by Congress to make homeownership accessible and make the 30-year fixed-rate mortgage “bread and butter.”

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Fannie May and Freddie Mac have been under custody with FHFA since 2008 after the mortgage giant nearly collapsed during the financial crisis. The agreement was made to help two government-backed businesses recover from housing market conflicts.

The Treasury supports both companies financially through a Senior Preferred Stock Purchase Agreement or SPSPAS, and helps them remain solvent.

The mortgages that had been created up to the financial crisis were complicated, dangerous and untracked, Wachter said. Risks could accumulate outside of hours.

Indeed, such a dangerous loan came from private-sector private label mortgage support securities, she said. When the market collapsed and the trillion dollar worth of lending evaporated within a year, GSE was caught up in crossfire.

“Private mortgage support securities, dangerous loans have caused a crisis, but all mortgage players have been hit,” Wachter said.

With Fannie and Freddie being the two biggest mortgage institutions, the government intervened and bailed out businesses in 2008 to avoid further damage to the housing market.

Fannie and Freddie were explicitly supported by the government, and measures were taken to not only limit exposure to taxpayers under their parents, but also to eliminate the risks for them, Winkler said. .

Under government control, GSE is not operated entirely as a private company. He said there are limited key goals for stabilizing the housing market in achieving profitability, strict surveillance and maximizing profits.

Trump himself has not mentioned the reserve yet, but others have spoken about it.

Scott Turner, the new secretary of housing and urban development, mentioned in an interview published February 5th in the Wall Street Journal that efforts to free Fannie and Freddie are a priority.

Bill Ackman, CEO of Pershing Square, posted to X in December, “The successful emergence from Fannie and Freddie should generate an additional $300 billion in government profit.”

Even if the administration prioritizes parents, the process itself could take years to complete, experts say.

“It’s not something that can be done with one contract and one signing,” Wachter says. The process involves multiple parties, including the Ministry of Finance, Department of Justice, FHFA and private sector shareholders.

But “based on all economics, there shouldn’t be any chance they’ll be released administratively,” Zandi said. “That makes no financial sense.”

“This release is a loss and loss for taxpayers, home buyers, housing markets and the economy. Everyone is getting worse than they are,” Zandi said. “What issues are we trying to fix?”