Pacific Investment Management Company (Pimco) has warned that the Trump administration's plan to sell Fannie Mae (FNMA.US) and Freddie Mac (FMCC.US) could potentially drive up mortgage rates for American homeowners. In a client report, Libby Cantrill, the firm's public policy head, stated bluntly: "Don't fix what isn't broken." She pointed out that unless the equity sale clearly maintains the government's financial support commitment to both institutions, investor demand for their mortgage-backed securities could cool, leading to higher home loan costs for millions of families.

This warning follows the latest calculations from Citigroup strategists indicating that if both institutions complete privatization, mortgage rates could rise by 0.1 to 0.2 percentage points. At the higher end, typical borrowers would pay approximately $600 more in annual interest, undoubtedly adding pressure to families already squeezed out of the market by high home prices.

Currently, the US is planning to take Fannie Mae and Freddie Mac public again, with procedures expected to begin later this year aimed at raising approximately $30 billion. Twenty years ago, the government took over these two institutions to avoid catastrophic losses during the financial crisis. They have long played a central role in promoting US homeownership by purchasing bank mortgages, packaging them into bonds, and guaranteeing default payments.

However, industry observers note that removing both institutions from government conservatorship faces multiple challenges, and any operational missteps could undermine market confidence in government support. Trump administration officials, including Treasury Secretary Scott Bessent and Federal Housing Finance Agency Director Bill Poole, have repeatedly emphasized in recent months that "preventing mortgage rate increases is a top priority."

Former Freddie Mac CEO David Brickman acknowledged: "This is a difficult problem, especially in the short term. Without providing clearer guarantees or expanding profit models, ending conservatorship without pushing up rates is nearly impossible."

The Treasury Department and Federal Housing Finance Agency have not yet commented on this matter.

In the institutional mortgage-backed securities (MBS) market worth over $6 trillion, investors appear confident in government measures to mitigate potential disruption. This includes Trump's own commitment to maintain "implicit guarantees" for both institutions. Recent MBS risk premiums have remained virtually unchanged, indicating traders still believe the government would support Fannie Mae and Freddie Mac in a crisis even after privatization.

However, Pimco reminds the market not to ignore the risks. The asset management giant, which manages over $2 trillion, noted: "Without clearer guarantees, markets could become tense." Investors' current trust in government support is one reason they demand lower returns, which indirectly suppresses housing loan rate increases.

Cantrill specifically mentioned the "Uniform Mortgage-Backed Securities (UMBS)" rules implemented in 2019 - this mechanism allows bonds from Fannie Mae and Freddie Mac to be traded without distinguishing their sources, and its effective operation relies on government uniform guarantees for all such mortgages. In her May report, she noted that if both institutions were dissolved without clear government support, this interchangeability would be broken, "almost inevitably leading to friction that causes mortgage rate increases."

Citigroup also pointed out another risk: to attract investors to participate in the IPO, both institutions might be forced to improve profitability, and the most direct way would be to increase guarantee fees charged to bond buyers - these fees compensate for principal and interest owed on bundled MBS they issue. Bank strategist Ankur Mehta estimated that guarantee fees could rise by 0.1 to 0.2 percentage points after privatization, ultimately passed on to mortgage rates.

"For privatization to succeed, returns must be enhanced. While raising guarantee fees isn't the only path, it's the most convenient option," he added, noting this could weaken both institutions' market share. If the government provides neither implicit nor explicit guarantees, Citigroup expects mortgage rates could surge by 0.8 percentage points, though Mehta considers this scenario less likely.

Currently, the government's specific plan for advancing privatization remains largely unknown. Institutions like Citigroup believe that if clear guarantees are ultimately provided, privatization's impact on rates could be minimal or even drive rates slightly lower. However, most observers note that any form of guarantee would require congressional legislation, and given partisan deadlock in Washington, this path has extremely low feasibility.

Additionally, key issues remain unresolved before the IPO. Pimco's Cantrill noted that although Fannie Mae and Freddie Mac have been profitable for years, they still lack approximately $200 billion in capital needed for listing, "raising questions about potential investor demand." She believes thoroughly reforming capital rules requires regulatory adjustments, but no related actions have been seen yet.

Former Freddie Mac CEO Donald Layton emphasized that if the government wishes to give shareholders greater voice, it needs to clarify both institutions' business scope after going public. In his article at NYU's Furman Center, he wrote that the lack of such constraints before 2008 was precisely why both institutions became overly involved in subprime mortgage markets and ultimately required bailouts.

Cantrill also mentioned that if market trust in the government's "implicit guarantee" continues to waver, regulators need to clarify how to handle trillions of dollars in agency MBS held on bank balance sheets.

"Solving all problems takes time," she judged, suggesting Fannie Mae and Freddie Mac may still be years rather than months away from privatization. "Whether it's worth pursuing if privatization only brings marginal benefits while pushing up rates remains unknown."