MW Two big ways Trump's plans for Fannie Mae and Freddie Mac could cost home buyers

By Aarthi Swaminathan

'This is a big deal and must be approached with caution, careful deliberation, and purpose,' says one former housing-finance official

The housing market is facing a big development that could potentially shake up interest rates on home loans at a time when would-be buyers have been waiting for rates to drop.

President Donald Trump has said he wants to change the way the government handles two giants in the real-estate world, Fannie Mae and Freddie Mac, which are presently under government conservatorship.

The two government-sponsored enterprises have a significant impact on Americans' daily lives. Fannie Mae and Freddie Mac each back one in four home mortgages in America today. When lenders originate conventional home loans to home buyers, Fannie and Freddie repackage those loans and sell them on the secondary market to investors. Fannie and Freddie also offer a guarantee that those loans will be repaid in full should they go bad. This system ensures that investors get paid and that home loans are widely available.

Democrats recently called on Trump to halt the re-privatization efforts

Fannie Mae and Freddie Mac weren't always under the government's thumb. They initially traded on the public markets. Fannie Mae became a privately-held company in 1968, trading under the ticker (FNMA) on the New York Stock Exchange.

But that changed during the subprime mortgage crisis. The two housing-finance giants collapsed in 2008 and were brought under the federal government's control. They were delisted in 2010, but they still trade over the counter.

Many Republicans have advocated for releasing them from the government's conservatorship. In his first term, Trump tried to privatize the companies, but didn't, and he now appears to be trying again. Arguments for privatization include the potential to reduce taxpayer risk and cut the federal government's costs, as well as to introduce competition to the two giants.

Democrats recently called on Trump to halt the re-privatization efforts. In a June 6 letter to the Trump administration, a group of Senate Democrats led by Elizabeth Warren of Massachusetts expressed concern that making changes to the way the current housing-finance system operates would benefit investors while harming everyday Americans.

"Economists have warned that reprivatizing the enterprises could have disastrous effects on the mortgage market, driving up costs for homebuyers even further," the senators wrote. "For example, some experts have estimated that mortgage rates could increase by up to 1% in the first year of privatization alone."

'Economists have warned that reprivatizing the enterprises could have disastrous effects on the mortgage market, driving up costs for homebuyers even further.'Senate Democrats in a letter the Trump administration

The main issue is that it is unclear exactly how Fannie and Freddie would be privatized. Unsettled questions include: Are Fannie Mae and Freddie Mac going to be relisted on the stock market? Are they still going to be rescued should they fail - meaning, will the government give the financial markets a guarantee should that happen? Will investors believe that the government will save them if they fail? Will Congress come up with a plan to provide an explicit guarantee to the two companies, which themselves guarantee trillions of dollars in mortgages?

"There are a lot of questions here," Jim Parrott, a housing-finance analyst, told MarketWatch. Parrott was an economic advisor in President Barack Obama's administration.

In response to MarketWatch, White House spokesperson Harrison Fields said that the Trump administration is "committed to strengthening the Federal Housing Finance Agency (FHFA) to advance the president's mission of restoring the dream of homeownership for all Americans."

He added that "any actions under consideration will be carefully evaluated in a safe and sound manner."

Depending on how the government proceeds, the average home buyer could be impacted. Here's how.

Mortgage rates could go up ... or not

Depending on what path the Trump administration takes, there are several factors that would determine whether mortgage rates would go up as a result, Parrott said.

Mortgage rates are already high and have been a barrier to many people's plans to buy a home. The 30-year fixed-rate mortgage averaged 6.87% as of June 6, according to Mortgage News Daily, and has remained close to 7% over the past few years. On the same date five years earlier, when Trump was last president, the average 30-year rate was 3.24%.

One key variable is whether the financial markets expect the federal government to rescue Fannie and Freddie if they collapse again. Investors are worried about the "extent and depth of the government's guarantee," Parrott said, and that could impact how they view mortgage-backed securities that Fannie and Freddie create.

If investors feel uncertain about the guarantee, they could demand a higher risk premium on such securities, and if they do that, that could flow to the average borrower in the form of higher mortgage rates, he explained.

"While both [government-sponsored enterprises] are now better capitalized and highly profitable, any release without clear terms around a government guarantee could drive up mortgage rates and destabilize the housing market," said Alanna McCargo, former president of Ginnie Mae, which like Fannie and Freddie, also backs mortgages.

Ginne Mae backs mortgages insured by the Federal Housing Administration, the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture. Fannie and Freddie back conventional mortgages.

What the head of one of the country's biggest mortgage lenders says about Fannie and Freddie's future

Mat Ishbia, president and chief executive of United Wholesale Mortgage $(UWMC)$, one of the country's biggest mortgage lenders, said he shares that sentiment, broadly speaking. "Rates going up would be tied to the implicit versus explicit backing of the federal government," Ishbia told MarketWatch. "This could cause interest rates to rise, which we hope doesn't happen."

Trump has tried to reassure the market that the government could provide an "implicit guarantee" to bail out the companies if needed. That could assuage some fears among investors, Parrott said, but there is no certainty that future presidents would do the same.

Trump "can't give them any assurance that the next president would make the same decision," Parrott continued, "so until Congress weighs in with an explicit guarantee, there will always be this little bit of uncertainty for investors."

Borrowers with lower credit scores could also see higher mortgage rates than they do today, Parrott said. The current housing-finance system is set up to charge lower-risk borrowers more and higher-risk borrowers less, to increase the number of people who can afford a mortgage.

The principal beneficiaries of this cross-subsidy have been home buyers with "modest incomes," those who have lower credit scores and those with higher loan-to-value ratios, meaning those whose down payments are smaller, according to a report by the Urban Institute, a nonpartisan think tank.

"They keep mortgage rates lower than they would otherwise be for [borrowers with] somewhat higher credit risk," Parrott said.

If the Trump administration pushes for "more risk-based pricing ... [and] they're not providing that cross subsidy, then you would see those with higher credit risk seeing their mortgage rates go up even further," he said.

The Trump administration's goal is to lower mortgage rates

The wrinkle in this issue is that the Trump administration wants lower mortgage rates. The mortgage industry and real-estate agents also want lower rates, because home sales have stalled. Housing affordability has worsened significantly over the past few years as home buyers have been priced out by high interest rates and record-high home prices.

For that reason, the administration may not even proceed with the privatization plan, UWM's Ishbia said.

"If rates go up because of this change, or this change happens and rates go up, that would be bad for everyone," Ishbia said in a video last week.

Ishbia praised actions that Federal Housing Finance Administrator Bill Pulte has taken at Fannie and Freddie recently, and suggested the enterprises could remain under conservatorship. "Fannie Mae and Freddie Mac acting more private, but still being in conservatorship might be the best of both worlds," he said in the video. "We'll see what happens, but ... if rates go up because of it, that's a negative, and I don't think that's going to happen."

Lenders could pass on higher fees to home buyers

One other outcome of the privatization of Fannie Mae and Freddie Mac could be higher fees for mortgage lenders, which could then get baked into mortgage rates, Parrott said.

If the Trump administration wants Fannie and Freddie to earn a higher return - either to make it easier to bring them out of conservatorship or to make more money for the government - one way to do that would be to increase fees charged to lenders.

Fannie and Freddie guarantee the payment of principal and interest on the mortgage-backed securities and they also charge lenders a fee for that. And that in turn could be passed on to the average borrower in the form of higher mortgage rates, Parrott said.

But if the two entities remain under the government's control, it's unclear whether Fannie and Freddie will charge higher so-called guarantee fees, or g-fees, or keep them at their current levels.

Ultimately, the question of whether to bring Fannie and Freddie out of conservatorship isn't controversial. "The current administration is right to reopen this conversation after 17 years of conservatorship," McCargo, the former Biden official, said.

MW Two big ways Trump's plans for Fannie Mae and Freddie Mac could cost home buyers

By Aarthi Swaminathan

'This is a big deal and must be approached with caution, careful deliberation, and purpose,' says one former housing-finance official

The housing market is facing a big development that could potentially shake up interest rates on home loans at a time when would-be buyers have been waiting for rates to drop.

President Donald Trump has said he wants to change the way the government handles two giants in the real-estate world, Fannie Mae and Freddie Mac, which are presently under government conservatorship.

The two government-sponsored enterprises have a significant impact on Americans' daily lives. Fannie Mae and Freddie Mac each back one in four home mortgages in America today. When lenders originate conventional home loans to home buyers, Fannie and Freddie repackage those loans and sell them on the secondary market to investors. Fannie and Freddie also offer a guarantee that those loans will be repaid in full should they go bad. This system ensures that investors get paid and that home loans are widely available.

Democrats recently called on Trump to halt the re-privatization efforts

Fannie Mae and Freddie Mac weren't always under the government's thumb. They initially traded on the public markets. Fannie Mae became a privately-held company in 1968, trading under the ticker (FNMA) on the New York Stock Exchange.

But that changed during the subprime mortgage crisis. The two housing-finance giants collapsed in 2008 and were brought under the federal government's control. They were delisted in 2010, but they still trade over the counter.

Many Republicans have advocated for releasing them from the government's conservatorship. In his first term, Trump tried to privatize the companies, but didn't, and he now appears to be trying again. Arguments for privatization include the potential to reduce taxpayer risk and cut the federal government's costs, as well as to introduce competition to the two giants.

Democrats recently called on Trump to halt the re-privatization efforts. In a June 6 letter to the Trump administration, a group of Senate Democrats led by Elizabeth Warren of Massachusetts expressed concern that making changes to the way the current housing-finance system operates would benefit investors while harming everyday Americans.

"Economists have warned that reprivatizing the enterprises could have disastrous effects on the mortgage market, driving up costs for homebuyers even further," the senators wrote. "For example, some experts have estimated that mortgage rates could increase by up to 1% in the first year of privatization alone."

'Economists have warned that reprivatizing the enterprises could have disastrous effects on the mortgage market, driving up costs for homebuyers even further.'Senate Democrats in a letter the Trump administration

The main issue is that it is unclear exactly how Fannie and Freddie would be privatized. Unsettled questions include: Are Fannie Mae and Freddie Mac going to be relisted on the stock market? Are they still going to be rescued should they fail - meaning, will the government give the financial markets a guarantee should that happen? Will investors believe that the government will save them if they fail? Will Congress come up with a plan to provide an explicit guarantee to the two companies, which themselves guarantee trillions of dollars in mortgages?

"There are a lot of questions here," Jim Parrott, a housing-finance analyst, told MarketWatch. Parrott was an economic advisor in President Barack Obama's administration.

In response to MarketWatch, White House spokesperson Harrison Fields said that the Trump administration is "committed to strengthening the Federal Housing Finance Agency (FHFA) to advance the president's mission of restoring the dream of homeownership for all Americans."

He added that "any actions under consideration will be carefully evaluated in a safe and sound manner."

Depending on how the government proceeds, the average home buyer could be impacted. Here's how.

Mortgage rates could go up ... or not

Depending on what path the Trump administration takes, there are several factors that would determine whether mortgage rates would go up as a result, Parrott said.

Mortgage rates are already high and have been a barrier to many people's plans to buy a home. The 30-year fixed-rate mortgage averaged 6.87% as of June 6, according to Mortgage News Daily, and has remained close to 7% over the past few years. On the same date five years earlier, when Trump was last president, the average 30-year rate was 3.24%.

One key variable is whether the financial markets expect the federal government to rescue Fannie and Freddie if they collapse again. Investors are worried about the "extent and depth of the government's guarantee," Parrott said, and that could impact how they view mortgage-backed securities that Fannie and Freddie create.

If investors feel uncertain about the guarantee, they could demand a higher risk premium on such securities, and if they do that, that could flow to the average borrower in the form of higher mortgage rates, he explained.

"While both [government-sponsored enterprises] are now better capitalized and highly profitable, any release without clear terms around a government guarantee could drive up mortgage rates and destabilize the housing market," said Alanna McCargo, former president of Ginnie Mae, which like Fannie and Freddie, also backs mortgages.

Ginne Mae backs mortgages insured by the Federal Housing Administration, the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture. Fannie and Freddie back conventional mortgages.

What the head of one of the country's biggest mortgage lenders says about Fannie and Freddie's future

Mat Ishbia, president and chief executive of United Wholesale Mortgage (UWMC), one of the country's biggest mortgage lenders, said he shares that sentiment, broadly speaking. "Rates going up would be tied to the implicit versus explicit backing of the federal government," Ishbia told MarketWatch. "This could cause interest rates to rise, which we hope doesn't happen."

Trump has tried to reassure the market that the government could provide an "implicit guarantee" to bail out the companies if needed. That could assuage some fears among investors, Parrott said, but there is no certainty that future presidents would do the same.

Trump "can't give them any assurance that the next president would make the same decision," Parrott continued, "so until Congress weighs in with an explicit guarantee, there will always be this little bit of uncertainty for investors."

Borrowers with lower credit scores could also see higher mortgage rates than they do today, Parrott said. The current housing-finance system is set up to charge lower-risk borrowers more and higher-risk borrowers less, to increase the number of people who can afford a mortgage.

The principal beneficiaries of this cross-subsidy have been home buyers with "modest incomes," those who have lower credit scores and those with higher loan-to-value ratios, meaning those whose down payments are smaller, according to a report by the Urban Institute, a nonpartisan think tank.

"They keep mortgage rates lower than they would otherwise be for [borrowers with] somewhat higher credit risk," Parrott said.

If the Trump administration pushes for "more risk-based pricing ... [and] they're not providing that cross subsidy, then you would see those with higher credit risk seeing their mortgage rates go up even further," he said.

The Trump administration's goal is to lower mortgage rates

The wrinkle in this issue is that the Trump administration wants lower mortgage rates. The mortgage industry and real-estate agents also want lower rates, because home sales have stalled. Housing affordability has worsened significantly over the past few years as home buyers have been priced out by high interest rates and record-high home prices.

For that reason, the administration may not even proceed with the privatization plan, UWM's Ishbia said.

"If rates go up because of this change, or this change happens and rates go up, that would be bad for everyone," Ishbia said in a video last week.

Ishbia praised actions that Federal Housing Finance Administrator Bill Pulte has taken at Fannie and Freddie recently, and suggested the enterprises could remain under conservatorship. "Fannie Mae and Freddie Mac acting more private, but still being in conservatorship might be the best of both worlds," he said in the video. "We'll see what happens, but ... if rates go up because of it, that's a negative, and I don't think that's going to happen."

Lenders could pass on higher fees to home buyers

One other outcome of the privatization of Fannie Mae and Freddie Mac could be higher fees for mortgage lenders, which could then get baked into mortgage rates, Parrott said.

If the Trump administration wants Fannie and Freddie to earn a higher return - either to make it easier to bring them out of conservatorship or to make more money for the government - one way to do that would be to increase fees charged to lenders.

Fannie and Freddie guarantee the payment of principal and interest on the mortgage-backed securities and they also charge lenders a fee for that. And that in turn could be passed on to the average borrower in the form of higher mortgage rates, Parrott said.

But if the two entities remain under the government's control, it's unclear whether Fannie and Freddie will charge higher so-called guarantee fees, or g-fees, or keep them at their current levels.

Ultimately, the question of whether to bring Fannie and Freddie out of conservatorship isn't controversial. "The current administration is right to reopen this conversation after 17 years of conservatorship," McCargo, the former Biden official, said.

(MORE TO FOLLOW) Dow Jones Newswires

June 10, 2025 08:00 ET (12:00 GMT)

MW Two big ways Trump's plans for Fannie Mae and -2-

If Fannie Mae and Freddie Mac start acting like private companies, people may see "more products, more options and more affordability across the board," UWM's Isbhia said, "which is a win for consumers."

'This is a big deal and must be approached with caution, careful deliberation, and purpose.'Former Ginnie Mae president Alanna McCargo

But how the government handles the process is important, McCargo added. "I think both the Treasury secretary and the FHFA director understand the stakes and the importance of pursuing any reform in a way that safeguards the housing market - an essential sector of the economy that makes up nearly 18% of U.S. GDP," McCargo said. "This is a big deal and must be approached with caution, careful deliberation, and purpose."

What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out this form or write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Aarthi Swaminathan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 10, 2025 08:00 ET (12:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.