Fannie Mae-No Politics (FNMA)

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$Booooom ! What Happens if Fannie Mae and Freddie Mac Go Private?

Privatizing the government-sponsored mortgage giants could
be a windfall for investors and raise interest rates for home buyers.

$Booooom ! For homeowners, the privatization of Fannie and Freddie

would have no impact on an existing mortgage, because

the terms they agreed to when they signed their loans

would not change. However, Fannie and Freddie buy

refinanced loans too, so a homeowner who wants to

refinance might also have to contend with the new marketplace.

By Ronda Kaysen - March 26, 2025, 5:02 a.m. ET

Fannie Mae and Freddie Mac have long been a bedrock of the American
home-buying industry, turning what could otherwise be a volatile market
into one that is stable and predictable for the people buying homes and
the investors who purchase home loans as mortgage-backed securities.

But last week, William Pulte, President Trump’s appointee to lead the
Federal Housing Finance Agency, shook the foundations of the two
mortgage firms when he ousted 14 of their 25 sitting board members
and installed himself as chairman of both boards. Mr. Pulte also removed
executives at both companies and at FHFA, which regulates Fannie Mae
and Freddie Mac. On Tuesday, he signed an order to end Fannie and
Freddie programs designed to provide assistance with down payments
and closing costs for some first-time home buyers.

The changes come as Trump administration officials ramp up talks of
privatizing the mortgage giants, which have been under federal
conservatorship since the foreclosure crisis in 2008.

While home buyers do not interact directly with Fannie Mae or Freddie
Mac, their mortgages are likely backed by one of them. Together, the
companies, which back single-family home loans up to $806,500,
support around 70 percent of the U.S. mortgage market. Privatizing
them could be a windfall for investors, but would likely make buying
a home more expensive in the midst of an affordability crisis.

“It would mean that mortgage rates would increase — definitely,”
said Laurie Goodman, the founder of the Housing Finance Policy
Center at the Urban Institute, a think tank in Washington, D.C.

What Are Fannie Mae and Freddie Mac?



Federal National Mortgage Association, or Fannie Mae, was
created during the Great Depression, when almost a quarter
of Americans lost their homes to foreclosure. Formed by
Congress as part of the New Deal, it was intended to provide
stability, liquidity and affordability to a crumbling housing
market. Federal Home Loan Mortgage Corporation, or
Freddie Mac, was formed by Congress in 1970 to expand
the secondary market for home mortgages. They are known
as government-sponsored entities, or GSEs.

After a lender gives a home buyer a loan, it has the option
to sell that loan on the secondary mortgage market, which
is dominated by Fannie Mae and Freddie Mac. The revenue
gives the lender more money to issue more loans.

After buying the loan, the GSE can bundle it with other
loans into mortgage-backed securities, then sell those
securities to investors including pension funds,
commercial banks, state and local governments,
and investment fund managers.

This system of selling mortgages on the secondary market
adds tremendous liquidity to the lending industry and
fosters a stable, reliable marketplace. For example,
Fannie Mae created the 30-year, fixed-rate mortgage.
In other countries, mortgages have a variable rate,
with interest rates rising and falling from year to year.
“The presence of that secondary market is what makes
that 30-year fixed mortgage available,” said Greg McBride,
the chief financial analyst of Bankrate.com.

It had always been implicit that the federal government
backed Fannie Mae and Freddie Mac, making them
attractive to investors. But in 2008, as the housing
market collapsed, the two GSEs faced bankruptcy
after they bought too many toxic subprime loans.
The government bailed them out, putting them into
a conservatorship that continues to this day.

A Drumbeat for Privatization

Toward the end of President Trump’s first term, his
administration began to consider privatizing the two
mortgage companies. This would be music to the
ears of investors who bought stock in the GSEs
after the 2008 crisis, when it was cheap.

To privatize, there would be an initial public offering
and investors would buy shares of the companies,
moving them off the government’s books and providing
a cash infusion for an administration that has made
cost-cutting a priority. Wealthy investors and hedge
fund managers who own shares at discounted prices
stand to make billions from an IPO. Among the
biggest proponents is the billionaire investor
William B. Ackman.

Recently, Trump officials have been floating the idea
again. In January, Mr. Ackman presented a detailed
privatization plan on X. In February, Scott Turner,
secretary of the Department of Housing and Urban
Development, said privatizing the companies was
a priority.

Interest Rates Could Rise. Rate-lock Agreements
Could Vanish.



While privatization would be a windfall for wealthy
investors, it would raise interest rates for home buyers,
Ms. Goodman said. How much would depend on
how the companies are privatized.

Why would rates rise? Under the current system, the
mortgage-backed securities that investors buy from
the GSEs are guaranteed by the federal government,
meaning investors are shielded from losses if too
many borrowers default on their mortgages. In a privatized
market without those guarantees, the securities could
become riskier investments, causing the rates to go up.
Lenders could also enact stricter borrowing requirements,
making it harder for some buyers to qualify for a loan.

Rate-lock agreements could be another casualty of a
more volatile market, Ms. Goodman said. Borrowers
rely on rate-lock agreements, which typically last 30
to 60 days. These agreements give home buyers
confidence that the interest rate their lender quoted
them will remain fixed while they go through the slow
process of finalizing a home purchase. A buyer is able
to lock in that rate because their lender knows it can
easily sell the loan once the sale closes. But if those
conditions change in a privatized market, lenders
might be hesitant to lock in rates, or charge significantly
more for the option. For borrowers, this would mean
more uncertainty at the closing table, potentially
upending deals.

“Everyone talks about privatization like you flip the switch,”
Ms. Goodman said. “In reality, there’s tons of questions
you can answer before you do that IPO.”

What Does This Mean for Existing Homeowners?

For homeowners, the privatization of Fannie and Freddie
would have no impact on an existing mortgage, because
the terms they agreed to when they signed their loans
would not change. However, Fannie and Freddie buy
refinanced loans too, so a homeowner who wants to
refinance might also have to contend with the new
marketplace.

Ronda Kaysen, a real estate reporter for The Times,
writes about the intersection of housing and society.
More about Ronda Kaysen