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What is Trump’s Plan for Privatizing Fannie Mae and Freddie Mac?

March 23, 2025 by Marco Santarelli

What is Trump's Plan for Privatizing Fannie Mae and Freddie Mac?

Donald Trump's renewed interest in privatizing Fannie Mae and Freddie Mac has reignited a long-standing debate about the future of the U.S. housing market. In short, the plan to free Fannie Mae and Freddie Mac likely means increased risk and potential instability in the housing market, at least in the short term. The impact on homeowners, buyers, and the overall economy could be substantial depending on how privatization is executed. Let's dive deeper into what this could entail.

What is Trump's Plan Regarding the Privatization of Fannie Mae and Freddie Mac?

Why Should You Care About Fannie and Freddie?

Before we get into the nitty-gritty, let's understand why Fannie Mae and Freddie Mac are so important. Think of them as the unsung heroes (or villains, depending on your perspective) of the mortgage world. They don't directly lend money to you and me, but they buy mortgages from lenders, package them into mortgage-backed securities (MBS), and sell them to investors. This process does a few crucial things:

  • Keeps money flowing: By buying mortgages, they replenish lenders' funds, allowing them to issue more loans.
  • Makes mortgages more affordable: Their guarantee reduces the risk for investors, which translates to lower interest rates for borrowers.
  • Standardizes mortgage lending: They set guidelines for the types of mortgages they'll buy, which encourages consistent lending practices across the country.

Essentially, they make sure there's enough money available for people to buy homes and that those homes are reasonably priced. They currently back around 70% of the mortgages in the US.

A Quick History Lesson: The 2008 Crisis and Conservatorship

To really grasp what’s at stake with Trump's plan, we need to rewind to the 2008 financial crisis. Fannie Mae and Freddie Mac were major players in the subprime mortgage market. When the housing bubble burst, they were holding a ton of risky loans that went bad. To prevent a complete collapse of the housing market, the government stepped in and placed them into conservatorship.

This meant the government took control, injected billions of dollars to keep them afloat, and essentially guaranteed their obligations. Since then, they've been operating under government oversight, slowly rebuilding their capital reserves.

What's the Plan Now? Deeper Dive

Now, let's get to Trump's plan. While the details remain a bit hazy, the basic idea is to end government control and return Fannie and Freddie to private ownership. This could involve:

  • Releasing them from conservatorship: Letting them operate independently without government oversight.
  • Recapitalizing: Allowing them to raise capital from private investors to build up their financial strength.
  • Adjusting their business model: Potentially limiting their role in the mortgage market to focus on specific types of loans.

The motivation behind this push seems to be a desire to reduce the government's role in the housing market and promote a more competitive environment. It is aimed at removing the implicit government backing that the entities currently have. However, the mechanics of how this will work are not clear, especially since previous attempts to legislate this have failed.

What Are the Potential Impacts? The Good, the Bad, and the Uncertain

Privatizing Fannie and Freddie is a complex issue with potentially far-reaching consequences. Here's a look at some of the key areas that could be affected:

1. Mortgage Rates:

  • The Concern: Without government backing, investors may demand higher returns for investing in mortgage-backed securities (MBS). This could lead to higher mortgage rates for borrowers.
  • The Optimistic View: A more efficient, privately-run Fannie and Freddie could potentially innovate and reduce costs, which could offset some of the upward pressure on rates.
  • My Take: I think mortgage rates will likely increase, at least initially. It is very difficult for private players to replicate the same guarantees without increasing the costs, and this increased costs will likely be passed on to the homeowners.

2. Mortgage Availability:

  • The Concern: A more cautious, privately-owned Fannie and Freddie might tighten lending standards, making it harder for some people to qualify for a mortgage.
  • The Optimistic View: Private companies may be more willing to take on innovative lending products that could help more people access homeownership.
  • My Take: I think the initial reaction will be conservative, as lenders become more risk-averse.

3. Housing Prices:

  • The Concern: Higher mortgage rates and tighter lending standards could cool down the housing market, leading to slower price growth or even price declines.
  • The Optimistic View: A more stable and predictable mortgage market could lead to more sustainable home price growth in the long run.
  • My Take: While a dramatic crash seems unlikely, I expect a period of price stabilization or modest declines in some markets.

4. Taxpayer Risk:

  • The Concern: Without government backing, Fannie and Freddie could potentially fail again, requiring another taxpayer bailout.
  • The Optimistic View: Privatization could eliminate the risk of future bailouts, shifting the risk to private investors.
  • My Take: This is the biggest potential benefit. If done right, privatization could protect taxpayers from future losses. But it also means the housing market is more exposed to market forces.

5. The Role of Community Banks:

  • The Concern: Smaller community banks may find it harder to compete with larger, private institutions, potentially reducing access to credit in some areas.
  • The Optimistic View: A more diverse mortgage market could create new opportunities for community banks to specialize in specific types of loans.
  • My Take: This is a valid concern. Regulations need to ensure that smaller lenders can still participate in the market.

Here's a quick summary in table format:

Impact Area Potential Concern Potential Benefit
Mortgage Rates Higher rates due to increased risk Lower rates due to efficiency gains
Mortgage Availability Tighter lending standards More innovative lending products
Housing Prices Slower growth or price declines More sustainable price growth
Taxpayer Risk Potential for future bailouts Elimination of bailout risk
Community Banks Reduced access to credit in some areas New opportunities for specialized lending

Who Benefits, and Who Loses?

Privatization will likely create winners and losers:

  • Winners:
    • Private investors: Could profit from investing in a privatized Fannie and Freddie.
    • Taxpayers (potentially): Could be shielded from future bailouts.
  • Losers (potentially):
    • Homebuyers: Could face higher mortgage rates and tighter lending standards.
    • Homeowners: Could see slower home price appreciation.
    • Smaller lenders: Could struggle to compete with larger institutions.

The Million-Dollar Question: How Will It Be Done?

The biggest uncertainty surrounding Trump's plan is how it will be implemented. There are several key questions that need to be addressed:

  • What kind of regulatory framework will be put in place? Strong regulation is needed to prevent excessive risk-taking.
  • Will there be any form of government guarantee? A limited government backstop could help stabilize the market during times of crisis.
  • How will they be recapitalized? The method of recapitalization could affect the value of existing Fannie and Freddie shares.

The answers to these questions will ultimately determine the success or failure of the plan.

My Personal Thoughts and Concerns

Having followed the housing market for many years, I have mixed feelings about this plan. On the one hand, I agree that reducing the government's role in the housing market is a worthwhile goal. The current system creates moral hazard, where Fannie and Freddie can take on excessive risk knowing that the government will bail them out if things go wrong.

On the other hand, I'm concerned about the potential for unintended consequences. A poorly executed privatization could destabilize the housing market, making it harder for people to achieve the dream of homeownership. The risk of higher mortgage rates and reduced access to credit are real and should not be dismissed lightly. The new entities need to be very well regulated, and given the political climate, I think that the chances of effective regulation are minimal.

Ultimately, I believe that a gradual and well-planned transition to a private system is the best approach. It is important to proceed with caution and carefully consider the potential impacts on all stakeholders.

What Should You Do?

Given the uncertainty surrounding Fannie and Freddie, here's my advice:

  • Stay informed: Keep up with the latest news and developments.
  • Be prepared: If you're planning to buy a home, be prepared for potentially higher mortgage rates.
  • Don't panic: The housing market is resilient, and it will adapt to whatever changes come its way.

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Filed Under: Housing Market, Mortgage, Real Estate Market Tagged With: Affordable Housing, Donald Trump, Emergency Price Relief, Fannie Mae, Freddie Mac, housing, Housing Market, mortgage, Rent Control

Freddie Mac Needs 15 Years to Unload All REO Inventory

November 21, 2011 by Marco Santarelli

Sales of Freddie Mac REO homes took a dip in 3Q11 compared to the first two quarters of the year as nonperforming loans surged consistently over the previous quarter.

The number of repossessed homes plunged to 25,300, falling by 13.5% quarter-on-quarter (q-o-q) or approximately 30,000 units in 3Q11. REO sales also stumbled from 31,600 in 1Q11, the highest number recorded in the government sponsored enterprise’s (GSE) history.

In 3Q11, Freddie Mac thrust back 24,300 homes into its current inventory while disposing 25,300 REO properties at the same time. At the end of the quarter, the mortgage capital provider has already accumulated 60,000 REO properties on its books, down by 25 percent year-on-year (y-o-y) as a result of newly completed foreclosures.

[Read more…]

Filed Under: Economy, Foreclosures, Real Estate Investments Tagged With: Foreclosures, Freddie Mac, Housing Market, REO Inventory

Fannie and Freddie Delisted! What Does it Mean for Real Estate?

June 29, 2010 by Marco Santarelli

You might have missed this little item in the nightly news report; government home mortgage giants Freddie Mac and Fannie Mae are delisting from the New York Stock Exchange. Despite $145 billion in taxpayer funds spent to shore up the pair, shares have dropped so significantly they no longer qualify for inclusion on the exchange but will continue to be traded via the infamous bulletin board instead.

In order to participate in the traditional exchange, shares must trade above $1…Fannie has been below that level for well over a month making delisting a legal necessity. Freddie has continued to struggle at just over the $1 level but will also be delisted given the eventual prospects. Given the difficulty of becoming profitable…much less an actual attempt to repay the government aid, it's unlikely any serious effort to revive the failing entities will be forthcoming.

[Read more…]

Filed Under: Real Estate Investing Tagged With: Fannie Mae, Freddie Mac

Ben Bernanke: "Dumbass of the Decade?"

January 22, 2010 by Marco Santarelli

Ben Bernanke, "Time Magazine’s Man of the Year".

How about “Dumbass of the Decade?”

You just can’t make this stuff up! This choice by Time Magazine displays the collusion between the government and the main stream media. Bernanke as "Person of the Year" is almost as bad as President Obama receiving the Nobel Peace Prize.

I believe in the next year or so it will become apparent to all the "sheeple" out there, who just gobble up all the BS from the main stream media as the truth, that Ben Bernanke is actually "Dumbass of the Decade" instead of "Man of the Year" when everyone realizes what he actually did with our money. The only true way to find out what he did is to audit the Fed. Unfortunately, if the Fed were audited today we would probably have another stock market crash when everyone realizes where all the money went to.

The Dumbass Bernanke Timeline:

[Read more…]

Filed Under: Economy Tagged With: Ben Bernanke, Economy, Fannie Mae, Federal Reserve, Freddie Mac, Man of the Year, Real Estate Investing, Time Magazine

Government Handcuffs Real Estate Investors

December 24, 2009 by Marco Santarelli

Leave it to the government to take a crippled housing market (which they helped destroy) and make it worse by prolonging its recovery.

Regulators have taken a loose and passive role watching the housing bubble inflate.  Now, true to their nature, regulators are making the problem worse with their slow response and lack of real-world solutions.

Real estate investors, in my opinion, have been unfairly squeezed by the ever tightening underwriting guidelines.  We are dealing with larger down payments, higher credit scores, larger cash reserves, and lower debt-to-income ratios.

As a real estate investor, Fannie Mae and Freddie Mac require you to have a bullet proof credit profile to even be considered for financing. When you consider that investors put up a larger down payment than most home buyers, require better credit, and typically research and buy investment property with a cash-on-cash return, lenders and regulators should be more willing to finance these solid transactions. They would also help solve the housing crisis by reducing the excess foreclosure inventory sought by rehabbers and wholesalers.

[Read more…]

Filed Under: Financing, Housing Market, Real Estate Investments Tagged With: Fannie Mae, FHA, Financing, Freddie Mac, Housing Market, mortgages, Real Estate Investing

When Will Mortgage Interest Rates Increase?

November 23, 2009 by Marco Santarelli

Maze-Interest-Rates On November 19, 2009 Freddie Mac recorded an average 30 year mortgage rate at 4.83%, down from 4.91% the previous week. Just over one year ago, the 30 year mortgage rate averaged 6.04%.  So long as you have solid credit and a 20% down payment, whether real estate investor or homeowner, this time in history is certain to mark historic lows for home buying.  In addition, those who still have equity in their property can take advantage of an incredible refinance opportunity.

Mortgage companies have seen steady rises in applications for refinance, but certainly not at the volumes seen just two years ago. Why isn't everyone flocking to refinance? The answer is quite simple, homeowner appraisals are often below the requirements needed to refinance and many homeowners are dealing with loss of income due to unemployment or wage cutbacks. The only solution is for the economy to pick up and create more jobs along with more competition for increased wages. Unfortunately such a task, although eventually likely, is not in the near future. Economists across the nation are predicting additional declines in jobs during the first quarter of 2010. Job creation is likely to remain slow during most of 2010.

Yet there is still a silver lining to the doom and gloom. It is likely that the federal government will do all they can to keep interest rates low up until actual job creation becomes more robust. Interest rate hikes over the next 6 to 9 months will only occur if outside-international influences force the hand of our financial markets to increase rates. Although a remote chance of this exists, I for one believe we have another year of healthy-low interest rates within the real estate market. Once rates do inch up it is likely to be welcome, so long as inflation remains tame and not hyper.

[Read more…]

Filed Under: Financing, Housing Market Tagged With: Fannie Mae, Freddie Mac, interest rates, mortgage interest, mortgage rates, Real Estate Investing

The Housing Market is About to Get Even More Oversupplied

November 18, 2009 by Marco Santarelli

While both the media and stock investors believe that housing has bottomed, they are unaware of the massive supply of homes that are already in the foreclosure process that will certainly drive home prices down even further when they are sold. We have been projecting a “W” shaped recovery for some time, and we are becoming even more convinced that we are right. The shape of the second leg down is almost completely dependent on the level of government intervention that will take place.

For a number of reasons, banks have not been aggressively taking title to homes and selling them, which has resulted in very few distressed sales in comparison to the actual level of distress in the market. This delay in REO sales, along with historically low mortgage rates and an $8,000 tax credit, has helped to stabilize the housing market – temporarily.

It is very clear that price stabilization is temporary unless something is done. Here are some facts to help project what housing will be like in 2010:

[Read more…]

Filed Under: Foreclosures, Housing Market Tagged With: Fannie Mae, FHA, Foreclosures, Freddie Mac, Housing Market, Real Estate Investing, REO

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