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Earlier this month, President Donald Trump signed his party’s reconciliation/tax overhaul bill.
With reconciliation/taxes now in the rearview mirror, Freddie Mac and Fannie Mae conservatorship could move up the docket. After all, back in May, Treasury Secretary Scott Bessent said that privatizing Fannie Mae and Freddie Mac would be on the agenda after taxes and trade deals.
“It [privatization of Fannie and Freddie] is a goal for this administration,” Treasury Secretary Scott Bessent said in May. “Again, we’re doing peace deals, tax deals, and trade deals. As we land some of those deals then we will focus on that [privatization of Fannie and Freddie]. But what I can tell you is that we are doing a great deal of studying at Treasury because the one requirement for this privatization is that they are privatized in such a way that mortgage spreads do not widen.”
One reason housing stakeholders should pay attention to the fate of Freddie Mac and Fannie Mae is the long standing concern that ending conservatorship could put upward pressure on mortgage rates. See, once released, Fannie Mae and Freddie Mac could need to hold more capital to absorb losses. To build and maintain that capital, they may need to increase guarantee fees charged to lenders. In addition, upon release, unless there’s an “explicit guarantee” or backstop from Congress, investors may demand higher returns to account for increased risk.
Those concerns are real enough that this spring, both Treasury Secretary Scott Bessent and Federal Housing Finance Agency (FHFA) director Bill Pulte said that Freddie Mac and Fannie Mae conservatorship changes wouldn’t be made if doing so put upward pressure on mortgage rates/mortgage spreads.
“The priority for a Fannie and Freddie release, the most important metric that I’m looking at is any study or hint that mortgage rates would go up. Anything that is done around a safe and sound release [of Fannie Mae and Freddie Mac] is going to hinge on the effect of long-term mortgage rates,” Treasury Secretary Scott Bessent said in February.
While Bessent has suggested they’re looking into “privatization,” Pulte has indicated it’s not really Fannie Mae and Freddie Mac “privatization,” but rather taking them “public.” To be honest, I’m not entirely sure what he’s getting at. Maybe keeping them in conservatorship but selling off more shares? I’m not sure.
“At Fannie Mae we have $4.3 trillion on our balance sheet. At Freddie Mac, we have over $3 trillion,” Pulte said in May. “I would point you to his [Trump’s May] tweet. He explicitly says he wants to take them [Fannie Mae and Freddie Mac] public—he did not say he wants to privatize them or many of the other things that are out there. I think these businesses have a ton of value. These businesses one day could be worth trillions of dollars. We’ll see what the president ultimately decides.”
While the U.S. Treasury owns the majority of Fannie Mae and Freddie Mac profits through senior preferred stock agreements, the common and preferred shares that existed before conservatorship were never fully wiped out.
Once Wall Street realized Trump had won the 2024 election, the stocks of Fannie Mae and Freddie Mac spiked as the market priced in higher odds that the second Trump administration would attempt to end the current status quo.
Looking at their share prices today, it’s clear that either Wall Street or retail investors (or both) think something new is still on the horizon for Freddie Mac and Fannie Mae.
As noted above, Pulte made comments in May that seemed to suggest that what they’re considering could just be selling off/releasing some of the Freddie Mac and Fannie Mae stocks currently held by the government, and maybe not a full release.
To better understand what the Trump administration is planning to do with Freddie Mac and Fannie Mae—and how they’re considering concerns that a release could put upward pressure on mortgage rates—we reached out to Pulte to see if he’d speak at ResiDay 2025 on Friday, November 7. He said yes.
By the time ResiDay 2025 rolls around, we may already have a much clearer picture of what the administration is planning to do—or not do—with Freddie Mac and Fannie Mae. Even then, there will be several other timely topics we’d like to ask Pulte about. That could include how they plan to implement any Freddie Mac/Fannie Mae changes; Fannie Mae and Freddie Mac accepting VantageScore 4.0 for mortgage underwriting; and his public attacks on Jerome Powell.
Here’s a quick Q&A if you’re looking for a refresher on Freddie Mac and Fannie Mae.
Why are Fannie Mae and Freddie Mac in conservatorship?
Fannie Mae and Freddie Mac were placed into conservatorship by the FHFA in September 2008 after suffering massive losses during the housing crash, threatening the stability of the U.S. financial system. The U.S. Treasury provided a bailout to keep them afloat, and they have remained under government control ever since—despite returning to profitability.
What do Fannie Mae and Freddie Mac do, and how do they impact the housing market?
Freddie Mac and Fannie Mae are government-backed enterprises that help keep the U.S. mortgage market running smoothly. They don’t issue home loans themselves—instead, they buy mortgages from lenders, bundle them into mortgage-backed securities, guarantee those securities against default. This process creates a steady flow of capital, helping lenders offer more mortgages and keeping mortgage rates lower.
Because Freddie Mac and Fannie Mae set strict standards for the loans they buy, Freddie and Fannie shape how lenders underwrite mortgages. Their policies also influence who gets access to credit, especially first-time and lower-income buyers. During downturns, Freddie Mac and Fannie Mae, in theory, help stabilize the housing market by continuing to support lending.
While Fannie and Freddie are not officially backed by the full faith and credit of the U.S. government, they are in federal conservatorship and widely perceived as having “implicit” government support.
What’s the worst case scenario for mortgage rates if conservatorship ends without government backing?
IF Freddie Mac and Fannie Mae were fully released without an “implicit” or “explicit” government guarantee, Moody’s chief economist Mark Zandi tells ResiClub he thinks it could push up mortgage rate by 60 bps to 90 bps. So for instance, a 60 bps increase, would push the average 30-year fixed mortgage rate today from 6.82% to 7.42%.
“Release of the GSEs as SIFIs with no government guarantee, explicit or implicit—This would add an estimated 60-90 basis points to 30-year fixed mortgage rates compared to the current status quo for the typical borrower through the business cycle. Without a government guarantee, the Federal Reserve would not be able to buy the GSEs’ MBS, and there is the risk that the rating agencies would downgrade the GSEs’ debt and securities. The GSEs’ share of the mortgage market would significantly decline, and it would increase for private lenders and the FHA, resulting in greater taxpayer exposure, as taxpayers bear all the risk in FHA loans,” Mark Zandi told ResiClub earlier this year.
IF Freddie Mac and Fannie Mae are released with an “implicit” or “explicit” government guarantee, Zandi thinks the mortgage rate impact would be much smaller.
