Fannie, Freddie Privatization: Impact on Buyers & Investors
Potential Risks and Benefits as Mortgage Giants Go Private
A Long-Awaited Shift Back to the Private Market
Fannie Mae and Freddie Mac, which back nearly 70% of U.S. home loans, were placed under government control during the 2008 housing crash to stabilize the market. Now, discussions on their release into the private sector are gaining momentum, though significant logistical, legal, and economic hurdles remain.
During his first term, former President Donald Trump explored the idea of privatization, but it failed to materialize. Now, in his second term, the administration is again weighing the economic feasibility of cutting government ties to the mortgage firms.
“This decision could shake the entire housing finance system,” said Susan Wachter, professor of real estate and finance at The Wharton School. “If not executed carefully, it could result in higher borrowing costs and market instability.”
What This Means for Homebuyers
If privatization moves forward, experts believe mortgage rates will likely rise. “The question isn’t if rates will go up—it’s how much,” said Mark Zandi, chief economist at Moody’s Analytics. Without government backing, investors may demand higher returns, driving up costs for borrowers.
The potential shift comes at a time when more homebuyers are relying on cash purchases. In 2024, 26% of homebuyers paid in cash, the highest percentage on record, according to the National Association of Realtors. Still, nearly three-quarters of buyers financed their homes, meaning higher mortgage costs could affect millions of Americans.
Impact on Investors and the Housing Market
For investors holding Fannie Mae and Freddie Mac securities, privatization could bring increased risk. Without a government guarantee, these assets may become more volatile, leading to uncertainty in the mortgage-backed securities market.
Meanwhile, some stakeholders stand to gain. “Shareholders of Fannie and Freddie are pushing for privatization because they expect to profit,” Zandi noted.
A Complex Path Forward
Despite growing discussions, experts warn that privatization is not a simple process. The transition would involve multiple government agencies, Congress, and private investors.
Scott Turner, the new Secretary of Housing and Urban Development, recently stated that releasing the firms from conservatorship is a “priority.” Billionaire investor Bill Ackman has also advocated for privatization, arguing it could generate $300 billion in government profits while removing $8 trillion in liabilities from the federal balance sheet.
Still, others warn that the economic risks may outweigh the benefits. “Privatization could end up being a lose-lose situation for taxpayers, homebuyers, and the economy,” Zandi said.
As the debate continues, the future of Fannie Mae and Freddie Mac remains uncertain, but any major change could have lasting consequences for the U.S. housing market.