Not An April Fool's Joke

Letting the grubby little hands of the billionaires get their hands on all the money!

'Rates are going to go up': The challenge in privatizing Fannie Mae and Freddie Mac

The government-backed companies could be released from oversight when home affordability is near an all-time low.

Yahoo Finance

By Claire Boston

March 31, 2025

Fannie Mae and Freddie Mac shares jumped this week after new comments from Trump administration officials and a board shake-up at the companies drew fresh attention to their potential release from government control.

But beyond the stock market, housing experts see plenty of reasons to be skeptical about the end of an arrangement that dates back to the depths of the financial crisis. The biggest one? Privatization will probably send mortgage rates higher.

“We can debate how much of a cost it will be,” said Mark Zandi, chief economist at Moody’s Analytics. “That’s a legitimate debate, but rates are going to go higher.”

The Trump administration is considering sweeping changes to a crucial piece of the US housing ecosystem at a time when affordability is near an all-time low and home sales are mired in a years-long slump. While Fannie Mae and Freddie Mac don’t make mortgages, they play a crucial role in lending by buying up mortgages from banks and other lenders and packaging them into bonds. The system frees up money for more loans.

Okay what are Fannie Mae and Freddie Mac loans. According to Perplexity AI:

Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are government-sponsored enterprises (GSEs) created by Congress to provide liquidity, stability, and affordability to the U.S. housing market. They play a pivotal role in the secondary mortgage market by purchasing mortgages from lenders, bundling them into mortgage-backed securities (MBS), and selling them to investors. This process ensures that lenders have access to capital for issuing new home loans, making mortgages more accessible and affordable for Americans.

Key Functions

• Liquidity: Fannie Mae and Freddie Mac buy mortgages from banks and other lenders, providing them with funds to issue more loans.
• Stability: By securitizing mortgages into MBS, they attract investors, ensuring a steady flow of funds into the housing market.
• Affordability: Their operations help lower interest rates on mortgages, making homeownership more attainable for families.

Historical Context

• Both entities were placed under federal conservatorship during the 2008 financial crisis due to their significant exposure to subprime mortgages. They remain under the oversight of the Federal Housing Finance Agency (FHFA).
• Together, they support around 70% of U.S. residential mortgages.

Recent Developments

In March 2025, discussions about privatizing Fannie Mae and Freddie Mac have intensified under the Trump administration. Privatization could potentially increase profits for investors but may also lead to higher mortgage rates and reduced affordability for homebuyers due to diminished federal backing

ChatGPT wrote:

"So, these financial institutions were designed to support affordable housing for low-income people, but in 2008, they faced a collapse during the 2008 Financial Crisis. Many of these institutions, particularly mortgage lenders, were involved in risky practices that contributed to the crisis, including the widespread use of subprime mortgages. When the housing market collapsed, it triggered a wider financial collapse, impacting brokerage houses and banks.

The U.S. government intervened to bail out these financial institutions to prevent a complete economic collapse. However, the bailout was not necessarily in exchange for nationalization in all cases. Some institutions, like Fannie Mae and Freddie Mac, were placed under government conservatorship, which is different from full nationalization. Others, like AIG and the big banks, received emergency loans or capital injections, but they were not directly nationalized."

Key Points to Clarify:

Affordable Housing and Subprime Mortgages: Institutions like Fannie Mae and Freddie Mac were created to support affordable housing, especially for low-income individuals. However, the 2008 crisis was exacerbated by the widespread issuance of subprime mortgages (loans to borrowers with poor credit), which were packaged into risky securities.

The 2008 Financial Crisis: The collapse occurred when these risky mortgages and mortgage-backed securities lost value as home prices plummeted, causing widespread panic. Financial institutions, including banks, brokerages, and insurers, faced massive losses, leading to the government stepping in to stabilize the system.

Government Bailouts: The government provided bailouts to many financial institutions. For example, AIG received a massive loan, and major banks were supported through capital infusions. Fannie Mae and Freddie Mac were placed into conservatorship, meaning they were temporarily taken over by the government, but they were not fully nationalized (i.e., the government did not own them outright, but it did take control).

Nationalization vs. Conservatorship: Nationalization involves the government taking complete control and ownership of a company. In contrast, conservatorship means the government takes control to stabilize an institution but doesn’t necessarily take full ownership.

So now Trump & Company want to give them back to the billionaires so they can rip us off again!

Yahoo goes on to write...

In the years since the financial crisis, Fannie and Freddie returned to profitability, paid back the government, and developed new methods to shift credit risk away from taxpayers. Meanwhile, the housing market recovered, and homeowner equity sits near record highs.

Now that it profitably they want it back!

Most experts agree that Fannie and Freddie would need some sort of government guarantee when they go private to continue without disruption. Even a return to an implicit guarantee would likely raise mortgage rates, said Jim Parrott, a nonresident fellow at the Urban Institute and a former White House economic adviser during the Obama administration.

So if it goes belly-up again, it won't cost the billionaires anything, we take all the risk and they take all the money!

"This is such a big issue," Fratantoni said. "The numbers are so big ... that this is going to take a lot of attention from the Treasury and particularly from the Treasury secretary."

Keep in mind that Fannie Mae and Freddie Mac were created to help low income people buy their first home to insure their mortgages, if they become "for profit" again how will it affect low income buyers?