Fannie Mae and Freddie Mac: What Happens if They Go Private?

In the world of finance, two giants have long held sway over the mortgage market: Fannie Mae and Freddie Mac. These government-sponsored enterprises (GSEs) have been instrumental in maintaining stability and liquidity in the housing market. However, recent discussions have centered around privatizing these entities, raising questions about the potential impact on homebuyers, investors, and the broader economy. Let's explore what could happen if Fannie Mae and Freddie Mac go private.

Impact on Homebuyers

1. Mortgage Rates: One of the most significant concerns is the potential increase in mortgage rates. Without the government guarantee, Fannie Mae and Freddie Mac could face higher borrowing costs, which could trickle down to consumers. According to Danielle Hale, Chief Economist at Realtor.com, "Mortgage rates would likely move higher, because right now, under conservatorship, there is a government guarantee that if Fannie and Freddie were to get into any trouble, they would be bailed out by the government, and thus investors would be bailed out." (Realtor.com)
2. Access to Credit: Higher mortgage rates could exacerbate affordability challenges, making it harder for many buyers to enter the market. According to a report by the National Association of Realtors, about 26% of homebuyers in the U.S. paid all-cash in 2024, a new high for the segment. However, roughly 74% of buyers financed their home purchase, indicating that most Americans still rely on mortgages to buy properties. (CNBC)
3. Erosion of Stability: Privatization could loosen the strict standards currently imposed on the loans that Fannie Mae and Freddie Mac can purchase, potentially leading to riskier lending practices reminiscent of the pre-2008 financial crisis. This could result in an erosion of stability in the mortgage market, with potential implications for the broader U.S. economy. (Realtor.com)

Impact on Investors

1. Higher Returns: If privatization leads to increased profitability, shareholders could see higher returns on their investments. However, this is not guaranteed, and the risks mentioned above could offset any potential gains. (Moody's Analytics)
2. Market Volatility: Privatization could introduce more market volatility, as the GSEs would be subject to the ups and downs of the stock market. This could make investments in Fannie Mae and Freddie Mac more risky in the long term. (Moody's Analytics)
3. Potential for Another Financial Crisis: If privatization leads to a relaxation of lending standards and increased risk-taking, it could set the stage for another financial crisis, similar to the one in 2008. This would have severe negative consequences for investors and the broader economy. (Moody's Analytics)

Impact on the Secondary Mortgage Market and the Broader Economy

1. Increased Competition and Market Efficiency: Privatization could lead to increased competition in the secondary mortgage market, as new private entities enter the scene. This could potentially drive market efficiency and innovation (Hermalin & Jaffee, 1997).
2. Potential Increase in Mortgage Rates: Without the government guarantee, Fannie Mae and Freddie Mac could face higher borrowing costs, which could trickle down to consumers in the form of higher mortgage rates. Estimates suggest that privatization could add as much as a quarter of a percentage point—or more—to mortgage rates (Hale, 2025).
3. Erosion of Stability and Riskier Lending Practices: Privatization could loosen the strict standards currently imposed on the loans that Fannie Mae and Freddie Mac can purchase, potentially leading to riskier lending practices reminiscent of the pre-2008 financial crisis (Zandi, 2025).
4. Impact on Homeownership and Multifamily Housing Financing: Repealing the GSEs' Federal charters could decrease homeownership by pushing up single-family mortgage costs, but it would only slightly affect the availability of multifamily housing financing (Wachter et al., 1997).
5. Reduced Federal Liabilities and Market Efficiency: Proponents of privatization argue that it could reduce federal liabilities and increase market efficiency (Stanton, 1997). However, critics warn of higher mortgage rates and potential economic risks (Zandi, 2025).

In conclusion, privatizing Fannie Mae and Freddie Mac could have significant implications for homebuyers, investors, and the broader U.S. economy. While it could lead to increased competition and market efficiency, it also poses risks such as higher mortgage rates, erosion of stability, and potential negative impacts on homeownership and multifamily housing financing. It is crucial for policymakers to carefully consider these factors when deciding the future of these GSEs.