Trump's Mortgage Market Gambit: Can He Privatize Fannie and Freddie Without Blowing Up Home Loans?

Ladies and gentlemen, buckle up! We're diving headfirst into the wild world of mortgage finance, where the Trump administration is playing with fire. The stakes? The entire $12 trillion mortgage market, and your wallet. The players? Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) that have been the backbone of the U.S. housing market for decades. And the big question? Can Trump and Treasury privatize these giants without sending mortgage rates through the roof?



Let's start with the basics. Fannie and Freddie buy home loans from lenders, bundle them into mortgage-backed securities, and sell them to investors. This process keeps the housing market stable and mortgage rates low. But since 2008, they've been under federal conservatorship, and now Trump wants to set them free. Why? Because privatization could be a goldmine for investors. Before the 2008 crash, Fannie Mae shares were trading at $66.49. After the bailout, profits went to the Treasury, not private investors. So, a privatization windfall is on the horizon, and investors are licking their chops.

But here's the catch: Fannie and Freddie enjoy significant benefits under their federal status. Local and state tax exemptions, lower federal borrowing costs, and a market premium on their federally backed securities. Lose that, and capital costs skyrocket. Guess who pays? YOU, the homebuyer. Mortgage rates will increase, and the 30-year fixed-rate mortgage, the holy grail of home loans, could vanish. BOOM! There goes your dream home.

And who's going to feel the pinch the most? Low and moderate-income families. They're already struggling with affordability, and this could be the final nail in the coffin. The National Association of Realtors reports that 74% of buyers financed their home purchase in 2024. But with higher mortgage rates, that number could plummet.

So, what's the solution? Experts say, "NOT SO FAST!" They want policy reforms in place before any privatization. But Trump and Treasury are charging ahead, with Secretary Scott Turner calling it his priority. And hedge fund investor William A. Ackman is cheering him on.

But here's the kicker: even if Trump pulls this off, it won't be easy. The market hates uncertainty, and privatization is a massive gamble. If not done right, mortgage rates could climb even higher. And remember, Fannie and Freddie support around 70% of the mortgage market. A misstep here, and the entire housing system could crumble.

So, what do you do? Stay tuned, folks. This is a story that's far from over. The market is a wild beast, and Trump is playing with fire. But one thing's for sure: the future of the mortgage market is at stake, and we're all watching with bated breath.

Ask Aime: How will the Trump administration's plan to privatize Fannie Mae and Freddie Mac impact the mortgage market and homebuyers?