Trump Fannie Mae Freddie Mac/ mortgage privatization/ housing finance/ Project 2025/ mortgage rates/ homeownership/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ If elected, Donald Trump may push to privatize Fannie Mae and Freddie Mac, which have been under government control since the 2008 financial crisis. Supporters argue that privatization would boost market competition and reduce taxpayer risk, while critics, including economists and Democrats, warn it could increase mortgage costs. The move, detailed in the GOP’s Project 2025, could reshape the housing market, potentially making homeownership less affordable.
Privatizing Fannie Mae and Freddie Mac: Quick Looks
- Privatization push: A Trump win could lead to privatizing Fannie Mae and Freddie Mac, mortgage giants under government control since 2008.
- Economic concerns: Critics warn privatization could add up to $1,200 per year to the average mortgage due to higher interest rates.
- Project 2025: GOP’s policy blueprint includes ending government conservatorship for Fannie and Freddie, but Trump has distanced himself from the full agenda.
- Market risk: Economists caution that privatization without federal backing could disrupt the mortgage market.
Trump Win Could Privatize Fannie Mae & Freddie Mac, Sparking Mortgage Cost Debate
Deep Look
With the 2024 election around the corner, the possibility of Donald Trump’s return to the White House has sparked renewed interest in a long-standing Republican objective: privatizing mortgage giants Fannie Mae and Freddie Mac. These two entities, which guarantee about half of the $12 trillion U.S. home loan market, have been under federal conservatorship since the 2008 housing crisis. Supporters argue privatization could increase market competition and protect taxpayers from future bailouts, while critics warn it could raise mortgage costs for everyday Americans, especially in a time of already-high interest rates.
If privatized, Fannie Mae and Freddie Mac would have to absorb risks previously mitigated by government backing, likely forcing them to raise fees or restrict lending to remain financially secure. Democratic nominee Kamala Harris has expressed concerns about the impact of privatization on homeowners, citing a study by economists Jim Parrott and Mark Zandi that predicts a rise in 30-year mortgage rates by as much as 0.97%. This increase, when applied to the average home loan, could mean an additional $730 to $1,670 per year for borrowers.
GOP policy advisors view privatization as a way to reduce taxpayer liability, citing that government intervention should not extend to corporate rescues. Mark Calabria, who led the Federal Housing Finance Agency (FHFA) during Trump’s first term, contends that privatizing Fannie and Freddie would fortify the mortgage system against future financial shocks. Calabria argues that the mortgage giants are now on solid financial footing, and with gradual capital-building, they could stand independently by 2027.
“There shouldn’t be any concern that mortgages will become unaffordable because of privatization,” Calabria said, pointing to companies like Citibank and General Motors, which returned to private ownership post-2008 bailouts. He argues that Fannie and Freddie could function similarly, challenging the notion that government guarantees are necessary to maintain stability.
In contrast, Parrott, who worked on the National Economic Council under President Obama, views the absence of a government guarantee as highly risky. Without it, Fannie and Freddie would likely have to increase capital reserves significantly, raising operational costs that would be passed on to consumers in the form of higher mortgage rates. Parrott expressed concerns that without federal backing, only borrowers with exceptional credit could access affordable mortgages, potentially shutting many Americans out of the housing market.
This debate over privatization is featured in Project 2025, a GOP policy manual for a potential Trump administration. Though Trump himself has distanced from endorsing all of its proposals, he expressed disappointment after failing to move forward with privatization during his last term. In a 2021 letter to Sen. Rand Paul, Trump cited insufficient time to complete the reforms. His campaign has not commented on whether privatization will be a priority if he wins in 2024.
Central to the privatization debate is whether Fannie Mae and Freddie Mac would retain any form of implicit government backing in case of financial trouble. Before the 2008 financial crisis, the mortgage giants operated as private entities but had an implicit understanding of federal support, a “guarantee” that materialized during the housing market collapse. However, many conservatives oppose reinstating such an agreement, arguing it would lead to another taxpayer-funded bailout.
On the other hand, critics argue that without any federal safety net, market confidence in Fannie Mae and Freddie Mac could weaken, destabilizing the mortgage market. Parrott warns that stripping the companies of all federal support could lead to a worst-case scenario where mortgage rates rise sharply, especially for borrowers without top-tier credit, creating a housing market increasingly inaccessible to middle-class Americans.
With interest rates expected to trend lower in the coming year, Parrott believes that under a potential Trump administration, Treasury officials may be cautious about fully privatizing Fannie and Freddie. Rising mortgage costs due to privatization could offset the benefits of falling interest rates, making homeownership less affordable despite broader economic trends.
Republicans argue, however, that an open market for mortgage finance is overdue. Many feel Fannie and Freddie’s prolonged government conservatorship stifles competition and leaves taxpayers vulnerable to future financial crises. Calabria believes the mortgage giants should be treated like other major companies rescued in the 2008 recession, such as AIG and General Motors, both of which have operated independently without federal oversight since their bailouts.
Yet, economist Jim Parrott warns that the market dynamics surrounding housing finance differ greatly from other industries. “The financial system depends on stable, affordable mortgages, and taking away government backing changes the calculus,” he said, noting that even a small increase in mortgage costs could price many Americans out of the market.
If Trump’s privatization plan advances, analysts expect backlash from Democrats and affordable housing advocates who view the proposal as a potential threat to accessible homeownership. While advocates for privatization argue that the market would eventually stabilize without federal support, the question remains whether the benefits of a more competitive market would outweigh the risks of potentially higher mortgage costs for millions of Americans.
With conservative allies like Calabria optimistic about ending government conservatorship, the privatization plan represents a pivotal point in the future of American homeownership. As both sides of the debate weigh the economic implications, the decision could reshape how millions of Americans access and afford housing in the years ahead.
