A New Housing Clash Is Coming Involving Two National Mortgage Giants And It Could Push Mortgage Costs To Even More Unaffordable Levels

The Trump administration's latest push to end government conservatorship of Fannie Mae and Freddie Mac has the housing world abuzz – and for good reason. 

According to the National Association of Realtors, these government-sponsored enterprises (GSEs) guarantee about 70% of U.S. mortgages. Any alterations to their structure could send shock waves through the housing market, impacting everything from mortgage rates to affordability.

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Fannie Mae and Freddie Mac have been under federal control since 2008 when the financial crisis pushed them into conservatorship. They are critical to the housing market because they buy mortgages from lenders, package them into securities and sell them to investors. 

This process allows banks to maintain the liquidity they need to continue issuing loans that help millions of Americans obtain long-term fixed-rate mortgages.

But it's not just a question of turning control over to private entities. This move could remake the entire housing finance system. Supporters, including former Federal Housing Finance Agency (FHFA) director Mark Calabria, say it's essential. 

He has emphasized that systemic issues within Fannie Mae and Freddie Mac need to be addressed during conservatorship. 

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Speaking at the 2019 National Association of Realtors legislative conference, Calabria noted, “What Congress decided in HERA [the Housing and Economic Recovery Act of 2008] was, if … Fannie or Freddie got in trouble, they enter conservatorship, we fix the problem and they move on.”

Privatization advocates argue it would reduce taxpayer risks and bring competition into the market. Critics, however, caution that it could come at a high price for borrowers. Without the implicit guarantee from the government, investors might grow more wary of mortgage-backed securities, forcing up yields and, ultimately, mortgage rates.

Mark Zandi, chief economist of Moody's Analytics, is one voice of concern. "House prices would tumble and the 30-year fixed mortgage rate could surge past 7%," Zandi told Fortune in a past interview.

Those concerns aren't abstract. Mortgage rates are already rising. Freddie Mac tracked the average 30-year fixed-rate mortgage at 6.84% on Nov. 21, 2024. That's the highest rate since July and an ominous signal for a market struggling with affordability.

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Housing prices aren't providing relief, either. According to the National Association of Realtors, the median home price has skyrocketed to $422,100, a 2.9% rise in the past year. For many Americans, the dream of homeownership seems increasingly out of reach.

And it's not just homebuyers who are paying attention. Investors have been responding to the buzz surrounding privatization. Fannie Mae and Freddie Mac shares rocketed earlier this month on speculation but have since taken a hit. Analysts at Keefe, Bruyette & Woods downgraded both stocks, citing fears of dilution risks in a possible transition.

The larger housing market makes things even more complicated. In December 2020, the National Association of Realtors (NAR) reported a record-low housing supply of 1.9 months. While inventory rose to 4.2 months by August 2024, it still falls short of demand. With inventory sparse, rising borrowing costs and uncertainty about the fates of Fannie and Freddie, the stakes couldn't be higher.

"It's really not a question of whether change will happen, but how," Michael Fratantoni, chief economist at the Mortgage Bankers Association, said recently in a press statement. "The fate of housing finance is up for grabs."

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