The Trump administration’s latest attempt to end the conservatorship of Fannie Mae and Freddie Mac has the housing world in turmoil — and for good reason.
According to the National Association of Realtors, these government-sponsored enterprises (GSEs) guarantee approximately 70% of U.S. mortgages. Any change to their structure could send shockwaves through the housing market, affecting everything from mortgage rates to affordability.
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Fannie Mae and Freddie Mac have been under federal control since 2008, when the financial crisis put them into receivership. They are critical to the housing market because they buy mortgages from lenders, package them into securities and sell them to investors.
This process allows banks to maintain the liquidity they need to continue issuing loans that help millions of Americans obtain long-term, fixed-rate mortgages.
But it is not just a matter of transferring control to private entities. This move could overhaul the entire housing finance system. Advocates, including Mark Calabria, former director of the Federal Housing Finance Agency (FHFA), say this is essential.
He has emphasized that systemic issues within Fannie Mae and Freddie Mac must be addressed during the conservatorship.
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During his speech at the 2019 National Association of Realtors Legislative Conference, Calabria noted, “What Congress decided in HERA [the Housing and Economic Recovery Act of 2008] was, if… Fannie or Freddie got into trouble, they went to the conservatorship, we solved the problem and they moved on.
Proponents of privatization argue that it would reduce risks to taxpayers and introduce competition to the market. However, critics warn that this could come at a high price for borrowers. Without the government’s implicit guarantee, investors could become more wary of mortgage-backed securities, driving up interest rates and ultimately mortgage rates.
Mark Zandi, chief economist at Moody’s Analytics, is one of our concerns. “Home prices would plummet and 30-year mortgage rates could rise above 7%,” Zandi told Fortune in an earlier interview.
These concerns are not abstract. Mortgage rates are already rising. Freddie Mac tracked the average 30-year mortgage rate at 6.84% on Nov. 21, 2024. That’s the highest rate since July and an ominous sign for a market struggling with affordability.
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House prices also offer no relief. According to the National Association of Realtors, the median home price has skyrocketed to $422,100, up 2.9% in the past year. For many Americans, the dream of owning their own home seems increasingly out of reach.
And it’s not just homebuyers who are paying attention. Investors have responded to the buzz around privatization. Shares of Fannie Mae and Freddie Mac soared earlier this month on speculation, but have since taken a hit. Analysts at Keefe, Bruyette & Woods downgraded both stocks, citing dilution risks from a potential transition.
The larger housing market further complicates matters. In December 2020, the National Association of Realtors (NAR) reported a record low housing supply of 1.9 months. Although inventory had increased to 4.2 months by August 2024, it still lags behind demand. With scarce supplies, rising financing costs and uncertainty about the fate of Fannie and Freddie, the stakes couldn’t be higher.
“It’s really not a question of if change will happen, but how,” Michael Fratantoni, chief economist at the Mortgage Bankers Association, said recently in a press statement. “The fate of housing finance is up for grabs.”
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This article There’s a new housing clash coming involving two national mortgage giants that could push mortgage costs to even more unaffordable levels. Originally appeared on Benzinga.com
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