05/28/25

In a recent announcement, President Trump outlined his intention to end the conservatorship of Fannie Mae and Freddie Mac. The plan involves returning the companies to private ownership while preserving the government's implicit guarantees and regulatory oversight. Trump emphasized that this approach aims to balance reducing taxpayer risk with maintaining stability in the housing market. The administration's proposal includes a significant initial public offering (IPO) for both entities, potentially raising $20–30 billion from new investors. This move could value the companies above $330 billion, with the government's stake estimated at over $250 billion. Experts caution that privatizing Fannie Mae and Freddie Mac could lead to higher mortgage rates. Without explicit government backing, investors may perceive mortgage-backed securities as riskier, demanding higher returns and, consequently, increasing borrowing costs for consumers.

While the proposal marks a significant policy shift, several challenges remain. Ending the conservatorship requires meeting specific capital and regulatory requirements to ensure the entities can operate independently without posing systemic risks. Some aspects of the plan may necessitate congressional approval, particularly those involving changes to affordable housing mandates and the structure of government guarantees. While the plan aims to reduce taxpayer exposure and promote market efficiency, however it could fundamentally alter the risk dynamics and liquidity of the secondary mortgage market. Currently, the government-backed status of these entities provides a safety net that encourages broad investor participation and stable pricing for mortgage-backed securities. Privatization could lead to reduced government guarantees, prompting investors to demand higher yields to offset increased risk—ultimately raising borrowing costs for banks and consumers alike. Additionally, if Fannie and Freddie become more profit-driven under private ownership, they may tighten underwriting standards or raise fees, further complicating the lending environment for banks that rely on selling loans into the secondary market to manage risk and maintain capital liquidity.

OBL will engage with the Trump administration to ensure that any plans to privatize Fannie Mae and Freddie Mac protect the interests of our members and preserve broad access to the secondary mortgage market. OBL will advocate for a regulatory framework that maintains fair pricing and equal participation opportunities for smaller lenders, who rely on Fannie and Freddie. Additionally, we will push for transparency around government guarantees, capital requirements, and potential changes to underwriting standards to safeguard liquidity and stability in the mortgage finance system.