According to media reports citing informed sources, the Trump administration is studying an executive order that could pave the way for the privatization of Freddie Mac and Fannie Mae, two mortgage giants that support more than half of the mortgage business in the United States. It is reported that this potential plan will instruct federal agencies to evaluate the idea, with supporters believing it could reduce the federal budget deficit and provide returns for taxpayers.
Bill Pulte, the director of the Federal Housing Finance Agency (FHFA), has conducted a thorough reform of the two government-sponsored enterprises since taking office. In his first week, Bill Pulte fired more than a dozen board members of the two entities, appointed himself as chairman, and brought in new directors, while FHFA employees and executives, including Freddie Mac CEO Diana Reid, were also fired or placed on leave.
Bill Pulte stated on social media that the remaining employees &#34;have significant upward mobility.&#34; However, industry insiders have indicated that this adjustment has raised concerns within the mortgage industry, especially considering the scale and sensitivity of the multi-trillion-dollar mortgage market.
It is worth mentioning that Bill Pulte stated last week that he is not in a hurry to privatize Freddie Mac and Fannie Mae. He said, &#34;Freddie Mac and Fannie Mae should not remain in government conservatorship forever. But the key is that any discussion about exiting conservatorship must ensure safety and soundness, as well as consider what impact this will have on mortgage rates.&#34;
Trump attempted to free Freddie Mac and Fannie Mae from the government conservatorship that has been in place since the 2008 financial crisis during his first term, but it ended in failure. Many of Trump's allies within the Republican Party have long advocated for ending this conservatorship, which was originally set to be temporary.
Today, the U.S. housing market faces high borrowing rates, a shortage of housing supply, and home prices near historic highs. Although mortgage rates have fallen from recent peaks, they remain high compared to levels in recent years.
Some experts warn that the move to privatize Freddie Mac and Fannie Mae could disrupt the mortgage market, making it more expensive for Americans to borrow to buy homes. Critics warn that if privatization is mishandled, it could prompt investors to demand higher returns, thereby increasing mortgage rates. Bill Pulte and Treasury Secretary Janet Yellen have stated that any plan will consider these risks.
Additionally, the Trump administration seems to be considering a bold plan to transfer the U.S. government's stake in Freddie Mac and Fannie Mae (estimated to exceed $250 billion) to a proposed sovereign wealth fund. Yellen hinted at this possibility in a recent podcast.
Although Moody's economists believe there is no imminent danger, they warn that an economic downturn could test the new leadership's ability to manage the system under pressure.
What do Freddie Mac and Fannie Mae do?
After the 2008 financial crisis, Freddie Mac and Fannie Mae were placed under government control to stabilize the housing market. Many experts believe that the effective operation of these two companies supports the 30-year fixed mortgage, which is the most popular type of housing loan in the United States
Freddie Mac and the Federal National Mortgage Association do not directly issue mortgages to borrowers. Instead, these two government-sponsored enterprises (GSEs) purchase mortgages from lending institutions and then repackage them for sale to investors. This helps ensure a stable flow of funds, allowing mortgage institutions to offer more affordable rates to potential homebuyers.
Experts say that without the government's guarantee to rescue Freddie Mac and the Federal National Mortgage Association during crises (like in 2008), privatization efforts could scare off investors. Investors purchasing these loans may demand higher rates as compensation.
The government's stake in these two mortgage giants has been profitable. According to JP Morgan, as of the third quarter of 2024, the combined net worth of Freddie Mac and the Federal National Mortgage Association is $147 billion. This means that the U.S. government's majority stake in these two government-sponsored enterprises is worth billions of dollars. Bill Pulte stated, &#34;Currently, these are quality assets for American taxpayers, and they have the potential to become even more valuable assets for American taxpayers.&#34;
Bill Pulte was confirmed as the director of the FHFA last week with a vote of 56 to 43. He stated that his main focus will be to root out fraud within these two companies and ensure they operate efficiently. When discussing Freddie Mac and the Federal National Mortgage Association, Bill Pulte said, &#34;Within reasonable limits, they are safe and sound. There is also an opportunity to further strengthen the safety and soundness of Freddie Mac and the Federal National Mortgage Association.&#34;

FMCC

FNMA

The Trump administration is studying an executive order that could pave the way for the privatization of Freddie Mac and Fannie Mae. These two mortgage giants support more than half of the mortgage business in the United States. Supporters believe that privatization could reduce the federal budget deficit and provide returns to taxpayers, but industry insiders warn that this move could disrupt the mortgage market. FHFA Director Bill Pulte has reformed the two entities, emphasizing that privatization must ensure safety and soundness while considering the impact on mortgage interest rates

- The Trump administration is exploring an executive order to potentially privatize Fannie Mae and Freddie Mac, which support over half of U.S. mortgage business.  
- Supporters argue this could reduce the federal budget deficit and benefit taxpayers, while concerns arise about the impact on mortgage rates and market stability.  
- Bill Pulte, the new FHFA director, emphasizes the need for safety and soundness in any privatization discussions, as the housing market faces high borrowing costs and supply shortages.

Zhitong

Freddie Mac

Federal National Mortgage Association

JPMorgan Chase

The Trump administration plans to promote the privatization of Freddie Mac and the Federal National Mortgage Association, critics warn: it may disrupt the mortgage market