Housing News

Fannie Mae and Freddie Mac Could Be Going Public. What It Could Mean for Homebuyers and Homeowners

When it comes to homeownership, there are two names that carry more weight than just about any other, even if most people haven’t heard of them: Fannie Mae and Freddie Mac.

The companies, which have been overseen by the federal government since 2008, play a gigantic role in the U.S. housing market. The companies back nearly two-thirds (64.2%) of all mortgages in the U.S., according to a recent report from the Urban Institute. Their backing allows lenders to make new loans to homebuyers.

But their days as government-sponsored enterprises (GSEs) could be coming to an end. In recent weeks, President Donald Trump and others in positions of power in the government have teased that the government could soon return Fannie and Freddie to their previous status as publicly traded companies.

If this comes to pass, it could have far-reaching consequences for anyone who owns a home or wants to own a home one day. Some experts have warned that a shift of this magnitude could lead to rising mortgage rates and higher fees to impacting how easy (or not) it is to get a home loan.

Here’s a look at how this could impact the housing market, starting with how Fannie and Freddie came under government control in the first place.

What are Fannie Mae and Freddie Mac?

Fannie and Freddie have been around for decades. The companies exist to support the U.S mortgage market. The companies don’t lend money directly to homebuyers or homeowners.

Rather, they buy thousands of home loans that lenders make, guarantee them, package them into investment vehicles called mortgage-backed securities, and sell them to investors.

Selling the loans gets the mortgages off lenders’ books, freeing up money they can use to make new loans. This ensures liquidity in the mortgage market.

This entire system is one of the main reasons that people in the U.S. can get a stable, 30-year fixed-rate mortgage, a unique feature of the American housing market.

Until 2008, the GSEs operated as publicly traded companies, competing to buy mortgages from lenders. But as the housing crisis began to unfold across the country and many people were unable to continue paying their mortgages, the GSEs fell into financial peril given how much of the U.S. housing market they were supporting.

To save the companies (and by extension, the entire U.S. housing economy), the federal government stepped in and took over the companies. Fannie and Freddie were placed into conservatorship and injected with billions of dollars in financial support.

This meant that the government was now fully in control of the companies. They were given the full financial backing of the U.S. Treasury Department acting as a backstop to any further economic uncertainty.

That’s how the GSEs have operated since then, under the direct supervision of the Federal Housing Finance Agency (FHFA).

In the years since then, the companies, which were once thought to be nearly extinct and were even rumored to be wound down entirely, have flourished, eventually returning a profit to the Treasury.

Given their improved financial standing, the debate has raged for years about returning the GSEs to shareholder ownership. And now, it looks like that may actually be happening, with Trump and FHFA Director Bill Pulte recently teasing a potential initial public offering (IPO) from the GSEs.

What would the impact of a Fannie/Freddie IPO be?

Analysts suggest that taking Fannie and Freddie public could raise approximately $30 billion for the companies and value the GSEs at around $500 billion in total.

But the potential implications go far beyond what this IPO would mean to the Treasury Department or the federal government.

Part of the reason that the GSEs have grown into their sizable and important positions in the housing market is because of the “implicit” guarantee of the government standing behind the two companies.

Basically, this means that the mortgage market, from lenders to investors, have relied on the thought that it was implied that the GSEs and by extension, the mortgages they backed, were guaranteed by the government.

If the GSEs were to be returned to their status as public companies, some analysts worry about the impact that removing the implicit guarantee could have on the mortgage market.

Some suggest that mortgage rates could rise as investors could demand a higher return on their mortgage-backed security investments to compensate them for the increased risk of loss without the implicit backing of the government.

Beyond that, as publicly traded companies, Fannie and Freddie’s primary goal could shift to delivering profit to their shareholders. This could mean higher fees and interest rates for borrowers to boost the companies’ bottom line.

A privatized Fannie and Freddie may also tighten their lending standards to minimize risk to investors. This may make it harder for first-time homebuyers, those with non-traditional sources of income (such as gig workers), or those with less-than-perfect credit to secure a loan, potentially freezing some out of the market.

However, there are some potential positives as well. With the government theoretically taking a step back from the mortgage market, other private companies could step forward to fill the gap.

This could lead to competition that drives innovation of new loan products, processes, and potentially even lower costs for borrowers.

Additionally, as private companies, Fannie and Freddie would be required to hold their own capital reserves to cover any potential losses. That means that the U.S. taxpayer would no longer be on the hook if the GSEs experienced any trouble.

What privatizing Fannie Mae and Freddie Mac means for homebuyers

Despite the questions, it’s not currently known whether the GSEs will be taken public or not. Nor is it known how much involvement and oversight the government would maintain in the companies’ operation.

There are even theories that the two companies could be merged into one and taken public as an entirely new company. That idea was met with decidedly “mixed” reviews from real estate professionals, who worry that a lack of competition between the two companies could hurt borrowers.

To put it simply, it’s all speculation at this point. A change of this magnitude and its impact could take years to sort out.

If you’re a potential homebuyer, there will likely not be much change for some time. However, a move toward privatization could mean that by the time you're ready to buy, the mortgage landscape could look very different. You might find slightly higher rates or discover that qualifying for a loan is more difficult than it is now.

If you’re a current homeowner whose mortgage is owned by Fannie or Freddie, your existing mortgage is safe. The terms of your loan are set and cannot be changed unless you refinance. If you do plan to refinance at some point in the future, you would be subject to these potentially new market conditions.

The future of Fannie Mae and Freddie Mac is a balancing act between protecting taxpayers and ensuring that homeownership remains affordable and accessible.

For now, the GSEs remain under government control, but the future of Fannie and Freddie will help to determine the future of the American housing market for decades to come.