If Donald Trump wins the presidential election, Republicans hope he will fulfill a longstanding GOP goal of privatizing the mortgage giants Fannie Mae and Freddie Mac, which have been under government control since the Great Recession. The Federal Housing Finance Agency has been overseeing the two firms for an extended period, with Republicans arguing that this has stifled competition in the housing finance market and put taxpayers at risk of another bailout. President Donald Trump previously sought to free the companies from government control during his tenure, but this was prevented by Joe Biden's victory in 2020.
Democrats and some economists caution that privatizing Fannie Mae and Freddie Mac could lead to higher mortgage rates, making homeownership more expensive, especially in the current climate of elevated mortgage rates. Concerns have been raised that without government support, the two firms would need to raise fees to offset increased risks, potentially causing mortgage prices to surge. Fannie Mae and Freddie Mac play a crucial role in the U.S. economy, guaranteeing approximately half of the $12 trillion U.S. home loan market.
Project 2025, a handbook for the next Republican administration, advocates for ending the conservatorship of Fannie Mae and Freddie Mac. However, there are differing opinions on the potential impacts of privatization. Economists Jim Parrott and Mark Zandi have warned that privatization could lead to a significant spike in the cost of buying a home for most Americans, with mortgage rates for 30-year mortgages potentially rising between 0.43% and 0.97%.
Former FHFA head Mark Calabria, on the other hand, believes that fears of increased mortgage costs are unfounded. He asserts that Fannie Mae and Freddie Mac are now financially healthier and that transitioning them out of conservatorship by 2027 is feasible. Calabria argues that privatization is necessary to strengthen the mortgage financial system and prevent future bailouts.
The debate over privatizing Fannie Mae and Freddie Mac revolves around the potential need for a government guarantee in the event of failure. While some argue that a guarantee is essential to prevent market chaos, others contend that such support is unnecessary and that the companies should operate without it. The history of the companies, including their bailout during the 2008 recession, adds complexity to the discussion.
As the issue of privatization continues to be debated, the future of Fannie Mae and Freddie Mac remains uncertain. While some anticipate a move towards privatization under a new Trump administration, others are skeptical of the potential consequences, including a resurgence in mortgage rates. The decision on whether to end the conservatorship of these mortgage giants will have significant implications for the housing finance market and homeowners across the country.
