In another twist of events, President Donald Trump has floated the release of Fannie Mae and Freddie Mac.
On his Truth Social Platform yesterday, he said, “I am giving very serious consideration to bringing Fannie Mae and Freddie Mac public.”
He went on to add that “Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH, and the time would seem to be right. Stay tuned!”
The move comes at a time when mortgage rates have experienced increased volatility, potentially related to his big, beautiful bill making its way through the legislature.
Questions remain if the pair’s release is a good idea and how it might impact the housing market, which is already in a tenuous position.
Fannie and Freddie Surge on the News of a Possible Exit
Shares of both Fannie Mae and Freddie Mac hit new 52-week highs on the message from President Trump.
At one point, shares of Fannie Mae (OTCMKTS: FNMA) rose to a whopping $10.89, before coming back down to around $9 per share. That’s still a 467% return over the past year.
Meanwhile, shares of Freddie Mac (OTCMKTS: FMCC) climbed to a new 52-week high of $7.60 before falling back to $7.08. That’s a near-380% return over the past year.
Long story short, there is a ton of speculation surrounding their eventual release, and big names like Bill Ackman are long both the stocks.
Ackman stands to make $1 billion or more if things pan out, which so far they have.
The shares of both companies were closer to $1 each before Trump won the presidential election back in November.
It’s unclear how high they could go, but the gains thus far would likely make any investor happy.
The pair have been in conservatorship since 2008, with the Treasury providing financial support via Senior Preferred Stock Purchase Agreements (SPSPAs).
As such, they have an implied government guarantee, which arguably leads to lower mortgage rates on loans backed by Fannie and Freddie, known as conforming mortgages.
The question is what might happen if they’re released.
Would Mortgage Rates Go Up if Fannie and Freddie Are Released?
This is the million-dollar question many are most concerned about. What would happen to mortgage rates if Fannie and Freddie go public?
There are varying opinions, though most speculate that mortgage rates would go up. But how much?
A quarter of a point, a half point, a full percentage point? That’s unclear.
The Urban Institute noted that bringing the GSEs out of conservatorship would increase g-fees by 10 to 25 basis points.
However, “impact on supply and demand and liquidity is more speculative.”
Either way, it could lead to resistance given that rates are already hovering around 7%, up from around 3% in early 2022.
One could argue that a release would have made more sense when interest rates were rock bottom, not when they’re the highest they’ve been this century.
Ultimately, without the implicit government guarantee, investors in GSE-backed mortgages will expect a higher return, which in turn will raise mortgage rates.
Any potential move also calls into question Uniform Mortgage-Backed Securities (UMBS), a single security issued by the pair.
If they become public companies, it’s unclear how their mortgage-backed securities would be pooled and guaranteed going forward.
On top of that, there’s the viability of a 30-year fixed mortgage. Would that go away too?
There are a lot of questions and not a lot of answers, which makes you wonder how quickly this could all actually happen.
Would Even More Borrowers Rely on Government-Backed Mortgages?
While Fannie and Freddie should arguably be released at some point, given it was always meant to be temporary post-early 2000s mortgage crisis, it needs to be conducted carefully.
Aside from mortgage rates potentially rising, there is concern that liquidity could dry up, making it more difficult to get a home loan.
If private capital doesn’t step up, you might see even more borrowers rely on the government, which would defeat the purpose of their release.
For example, more home buyers might take out an FHA loan, which puts increased pressure on taxpayers. Again, going against the nature of the release.
This could be a troubling development, with FHA lending already seeing a big uptick as borrowers stretch to afford homes.
Over the past year, FHA lending has seen its market share rise about 50%, from 12% to 18%, according to the Mortgage Bankers Association.
At the same time, delinquencies have risen markedly on FHA loans, which could pose a threat to that agency and further limit credit availability.
One has to wonder if now is the best time to talk release, and who it actually stands to benefit.
My beef has always been that it’s more a speculative stock play than a thoughtful policy change.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.