Written by: Internal Analysis & Opinion Writers
The Trump administration’s revived plan to privatize Fannie Mae and Freddie Mac is stoking fresh debate in Washington and on Wall Street, with experts warning that such a move could push mortgage rates higher and pose new challenges for homebuyers across the country. At the heart of the discussion lies a pivotal question: Can the U.S. housing market handle a shift away from government-backed mortgage guarantees?
Fannie Mae and Freddie Mac—two government-sponsored enterprises (GSEs) that guarantee nearly half of the country’s $12 trillion mortgage market—have been under federal conservatorship since the 2008 financial crisis. Now, with an eye toward reducing taxpayer risk and fostering more private-sector involvement in housing finance, the administration is again exploring the possibility of ending that arrangement and returning the entities to private hands.
The move, while long discussed, raises fundamental questions about how housing affordability and access to credit would be affected in a privatized landscape. Experts are divided, but many agree that consumers could face higher borrowing costs.
According to economists Jim Parrott and Mark Zandi, removing the government’s backing from Fannie and Freddie would require the GSEs to hold more capital to protect against potential losses. That added buffer, while strengthening financial stability, would likely drive up mortgage rates for consumers. Their analysis estimates that homebuyers could see rates rise by anywhere from 0.43 to 0.97 percentage points, which equates to an additional $730 to $1,670 annually for the average mortgage borrower. “Privatization would cause a pretty significant spike in the cost of buying a home for most Americans,” Parrott noted.
The implications go beyond individual homeowners. Higher mortgage rates could ripple across the broader housing market, slowing sales, dampening home price appreciation, and putting pressure on builders already facing material cost hikes and labor shortages. In an environment where affordability is already strained, especially for first-time buyers, that added cost burden could disqualify many from homeownership altogether.
But not everyone sees trouble ahead. Mark Calabria, former director of the Federal Housing Finance Agency (FHFA), has long supported the idea of winding down government control of the GSEs. He argues that Fannie Mae and Freddie Mac are now financially sound enough to operate as private companies and that fears of rate hikes are overblown. “I don’t think there should be any concerns that suddenly mortgages will become more or less expensive,” Calabria said, pushing back against the notion that privatization must lead to disruption.
Still, the execution of any privatization plan would need to be delicately balanced. The administration has signaled that while it’s committed to the idea in principle, it understands the risks of moving too fast. Newly appointed FHFA Director William Pulte has indicated that any exit from conservatorship must be carried out in a measured and cautious manner to avoid destabilizing the market.
During his Senate confirmation hearings, Pulte was clear in his message: “Any exit from conservatorship must be carefully planned to ensure the safety and soundness of the housing market without upward pressures on mortgage rates.” His stance suggests that regulators are mindful of the tightrope they must walk between fiscal reform and economic stability.
The potential changes also raise questions about the future of mortgage-backed securities, which Fannie and Freddie play a key role in issuing. Without an implicit government guarantee, investors might view these securities as riskier, demanding higher yields in return. Those added costs could then be passed on to borrowers, amplifying the rate increases forecast by housing economists.
In recent months, housing affordability has already taken a hit, driven by stubbornly high interest rates, tight inventory, and surging home prices. Mortgage rates remain elevated by historical standards, hovering above 7% for a 30-year fixed loan in many markets. In that context, even a modest increase driven by structural changes to the GSEs could push homeownership further out of reach for millions.
Critics of privatization also point to the lack of robust alternatives. While a more diversified mortgage market could theoretically offer more competition, the reality is that few institutions can match the scale and infrastructure of Fannie and Freddie. Removing or weakening their presence without a ready substitute could lead to reduced liquidity, tighter credit conditions, and increased volatility in the housing sector.
Nonetheless, supporters argue that long-term reform is necessary to protect taxpayers from future bailouts and reduce the federal government’s footprint in the housing market. The conservatorship arrangement was never intended to be permanent, and the debate over how and when to unwind it has spanned multiple administrations.
Industry insiders are also watching to see how the administration’s approach aligns with other regulatory and economic developments. Any shift in the GSEs' structure would have to be coordinated with broader policies on capital standards, secondary market access, and consumer lending. The challenge is creating a framework that balances market stability with private sector efficiency—a task that has eluded policymakers for more than a decade.
The stakes are high. Fannie Mae and Freddie Mac collectively guarantee trillions in loans, making them central to the functioning of the U.S. mortgage system. Changes to their status, governance, or risk profile would reverberate throughout the housing economy, affecting everything from builder sentiment to bond markets.
For now, the plan to privatize remains just that—a plan. But with key players in place and a clear political appetite for reform, momentum appears to be building. Whether it results in a meaningful shift or simply adds another chapter to a long-running saga will depend on the specifics of any proposal that emerges in the coming months.
As homebuyers, lenders, and investors brace for what may lie ahead, one thing is clear: even small changes in the structure of the housing finance system can have far-reaching consequences. And if rates do rise as expected, the path to homeownership could become steeper for many Americans.
