Renewed talks spark speculation about the future of mortgage industry under Trump
The prospect of Fannie Mae and Freddie Mac privatization is once again on the table as President-elect Donald Trump prepares to take office.
These two mortgage giants, which back about 70% of U.S. mortgages, have been under government conservatorship since the 2008 financial crisis. Trump’s earlier efforts to privatize the companies stalled during his first term, but supporters believe his new administration may finally achieve this goal.
Trump allies, including billionaire investor Bill Ackman, are optimistic. Ackman’s firm, Pershing Square, recently noted that privatization could transform the companies and potentially benefit stakeholders. However, the stakes for borrowers are high.
Economist Mark Zandi estimates that privatization could add $1,800 to $2,800 annually to mortgage costs for a typical borrower, with the burden falling most heavily on lower-income families.
“Bringing them back to private companies isn’t outlandish,” said Ted Tozer, former president of Ginnie Mae. “The question is, is it worth the pain of the transition?”
Fannie Mae and Freddie Mac don’t issue mortgages directly. They purchase loans from lenders and package them into securities sold to investors. This process ensures a steady flow of capital to mortgage markets and supports affordable loan rates.
Privatizing these companies could disrupt this system. Investors might view mortgage-backed securities as riskier without explicit government guarantees, leading to higher borrowing costs.
“As a politician, the last thing you’d want to do is cause problems when the problems don’t exist,” Tozer told CNN. “To have a hiccup occur and all of a sudden credit becomes more costly or people can’t get a mortgage at a reasonable rate, I don’t think any politician wants to face those unintended consequences.”
The US housing market is already under pressure, with mortgage rates hovering near 7%, tight inventory, and soaring home prices. The Federal Reserve’s monetary policies and inflationary concerns have fueled rate volatility, further complicating housing affordability.
Read more: Trump plans 25% tariff on Mexico, Canada, China
Compounding these issues, Trump has vowed to impose sweeping tariffs on imports from Canada, Mexico, and China. Many economists believe these tariffs could drive up inflation, keeping borrowing costs elevated.
“The law says they are eventually to be privatized. But the stakes are very, very high as to how this is carried out,” said Susan Wachter, a professor at the Wharton School.
One possible compromise involves charging the companies a fee for government guarantees in times of crisis. Wachter suggests that such a measure could mitigate risks while maintaining some level of market stability.
“It’s going to be the big challenge walking this fine line because it’s been more than 15 years of this conservatorship,” Tozer added.
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