The possible re-privatization of Fannie Mae and Freddie Mac could lead to higher mortgage rates

From Yahoo Finance: 2025-05-16 18:51:00

Shares of Fannie Mae and Freddie Mac have surged amid rising re-privatization odds. Pimco warns that this move could harm the mortgage market, potentially increasing costs for borrowers. Analysts caution that a rushed exit from conservatorship could lead to higher mortgage rates for Americans, impacting housing affordability.

Reform discussions for Fannie and Freddie have resurfaced in Trump’s second term, sparking investor optimism. Shares have skyrocketed since the election, with potential for even greater gains if the 16-year conservatorship ends. Pimco highlights risks if alternatives to re-privatization aren’t explored.

Fannie and Freddie play a vital role in the mortgage sector, accounting for 70% of the market. Government oversight has made them less susceptible to shocks, but going private could increase mortgage borrowing risks and reduce liquidity. JPMorgan warns of higher and more volatile borrowing costs post-privatization, affecting housing affordability.

The 30-year fixed mortgage rate hovers around 6.81%, posing challenges for prospective homebuyers in today’s market. Pimco’s concerns are being considered by the administration, with Treasury Secretary Bessent emphasizing that Fannie and Freddie’s release depends on the impact on mortgage rates. Uncertainty remains around potential rate hikes post-privatization.

Read more: How a corner of the Trump trade could unleash higher mortgage rates