Privatizing Fannie Mae and Freddie Mac: What Homebuyers and Investors Need to Know

As the new administration takes office, the privatization of Fannie Mae and Freddie Mac (the GSEs) is back on the table. This move could have significant implications for homebuyers and investors alike. Let's explore what this could mean for you.



What is privatization, and why is it happening?

Privatization involves ending government conservatorship and turning Fannie Mae and Freddie Mac into fully private companies. This means they would no longer have federal backing, and their profitability would depend on market forces and investor confidence. The goal is to reduce federal liabilities and increase market efficiency.

Impact on mortgage rates

One of the most significant concerns about privatizing Fannie Mae and Freddie Mac is its potential effect on mortgage rates. Without government backing, these entities could face higher borrowing costs, as investors would demand higher returns to compensate for the increased risk. This could trickle down to consumers, making mortgages pricier.

Mark Zandi, chief economist at Moody's Analytics, believes that "it's just a question of how much higher" mortgage rates would be if the government backing were removed. He estimates that the end of the conservatorship could bring on more risk for investors in mortgage-backed securities or in Fannie Mae or Freddie Mac's secured debt, leading to higher interest rates to compensate for that risk (Source: "Fannie Mae, Freddie Mac Set to Pay Taxpayers Back," NBC New York, 2025).

Realtor.com Chief Economist Danielle Hale predicts that ending the conservatorship would put upward pressure on mortgage rates. Investors would be less willing to lend without demanding a higher risk premium, ultimately making mortgages more expensive for consumers (Source: "Exploring the impact of privatizing Fannie and Freddie," Realtor.com, 2025).



Potential risks beyond rates

In addition to the potential for higher rates, critics fear that privatizing Fannie Mae and Freddie Mac could introduce other consequences:

1. Erosion of Stability: Privatization could loosen the strict standards currently imposed on the loans that Fannie Mae and Freddie Mac can purchase. This could lead to riskier lending practices, reminiscent of the pre-2008 housing market bubble (Source: Stanton, 2000).
2. Increased Market Volatility: Privatization could lead to greater reliance on institutional capital, reshaping the market landscape. While proponents argue that private lenders could bring innovation and competition, critics fear that profitability would take precedence over affordability, leaving underserved markets behind. This shift could also introduce market volatility, as private entities prioritize short-term gains over long-term stability (Source: Lightbox).
3. Reduced Support for Affordable Housing: Fannie Mae and Freddie Mac play a crucial role in financing multifamily housing, ensuring liquidity for workforce and affordable housing projects. Privatization could increase borrowing costs for multifamily developments, potentially hindering new projects and limiting the availability of affordable rental housing (Source: Lightbox).

Arguments in favor of privatization

Proponents of privatization argue that the original intention of Fannie and Freddie was that they were to be private companies. They believe that privatization could reduce federal liabilities and increase market efficiency. However, it is essential to consider the potential risks and engage in policy debates to shape the outcome in ways that benefit the broader market.

What should buyers do?

As a homebuyer or investor, it's crucial to stay informed about the privatization of Fannie Mae and Freddie Mac and its potential implications for mortgage rates and the broader housing market. Keep an eye on the news and engage in policy debates to help shape the outcome in ways that benefit the broader market.

In conclusion, the privatization of Fannie Mae and Freddie Mac could have significant implications for homebuyers and investors. While proponents argue that it could reduce federal liabilities and increase market efficiency, critics warn of higher mortgage rates, reduced support for affordable housing, and increased market volatility. It is essential to stay informed and engaged in the policy debate surrounding this critical issue.

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