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Privatizing government-sponsored enterprise (GSE) mortgage backers Fannie Mae and Freddie Mac appear to be edging closer to reality. This move could not only generate a substantial amount of money for some of Wall Street’s financial titans but also have profound implications for mortgage rates.
“I am giving very serious consideration to bringing Fannie Mae and Freddie Mac public,” Trump wrote on his Truth Social network on May 21. “Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH, and the time would seem to be right. Stay tuned!”
Priming for Privatization
It does appear Trump is priming the public and those affiliated with the GSE mortgage behemoths for the news. He said he would decide on privatization “in the near future” after meetings with key figures in his administration, including Treasury Secretary Scott Bessent, Secretary of Commerce Howard Lutnick, and Director of the Federal Housing Finance Agency William Pulte.
The mortgage giants were established to provide stability to the secondary home loan market, offering liquidity to homebuyers. However, the 2008 financial crisis almost sank the two entities. The government bailed them out with taxpayer funds, and they have been in conservatorship ever since. Their return to liquidity has been a boon for shareholders, who have received over $300 billion in dividends over the years, far surpassing the government’s initial bailout investment.
Billionaire Bill Ackman Will Make $1 Billion From Privatization
One of the main investors in the GSEs is Pershing Square Capital Management CEO Bill Ackman, a Trump supporter who’s speculated to own about 180 million common shares of the two entities and could stand to make $1 billion in a privatization play.
“Trump likes big deals, and this would be the biggest deal in history. I am confident he will get it done,” he said on X in December.
Realtor.com reported Ackman saying in January, “Conservatorship is supposed to be a temporary measure leading either to rehabilitation or to receivership and ultimately payment of creditors and shareholders.”
Privatization Could Hurt Homebuyers
Privatization of Fannie Mae and Freddie Mac could hurt homebuyers; however, this is something Trump would want to avoid.
“Mortgage rates would likely move higher, because right now, under conservatorship, there is a government guarantee that if Fannie and Freddie were to get into any trouble, they would be bailed out by the government, and thus investors would be bailed out,” Realtor.com Chief Economist Danielle Hale was quoted as saying in a Realtor.com article. “Which means consumers currently get lower mortgage rates, because investors are willing to lend without demanding as much of a risk premium.”
‘Line The Pockets of the Wealthy’
Senate Democratic Leader Chuck Schumer (N.Y.) was also unimpressed by talk of privatization, but for different reasons.
“Trump’s housing proposal to privatize Fannie and Freddie is yet another economic policy that will upend middle-class Americans looking to buy or refinance a home while helping line the pockets of the wealthy,” Schumer said in a statement.
Schumer continued:
“Experts have warned for years that privatizing Fannie and Freddie—which finances 70% of the American mortgage market—would threaten the financial security of middle-class Americans, making it harder and more expensive to buy a home. The average family could be hit with a whopping $1,800 to $2,800 increase in annual mortgage costs. Yet, Trump and his cronies only see an opportunity to loot the state, no matter the cost to hard-working families and our broader economy.”
Ackman is not the only investor who stands to profit from the sale of Fannie and Freddie. Other long-term investors include John Paulson, Anchorage Capital Group, Discovery Capital Management LLC, and Blackstone Credit, according to a Wall Street Journal report from 2021.
Democratic Senator Elizabeth Warren (MA), who is the top Democrat on the Senate Banking Committee, is another fierce critic of privatization. “[The president] hasn’t come to Congress with any kind of plan for Fannie Mae and Freddie Mac—and the last thing we need is to privatize them in a way that rewards Wall Street while driving up housing prices for people already struggling to buy homes,” she told CBS News in a statement.
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The Long-Term Effect on Mortgage Rates
There were no guarantees made during the government bailout and subsequent conservatorship of Fannie and Freddie that it would last forever, so talk of privatization should not come as a surprise. However, how it is done and its ramifications are all important considerations. A spike in mortgage rates will be a major dent in the Trump agenda.
Treasury Secretary Scott Bessent told Bloomberg earlier this year, “Anything that is done around a safe and sound release [of Fannie and Freddie] is going to hinge on the effect of long-term mortgage rates.”
That’s why Jaret Seiberg, an analyst at TD Cowen, thinks the Trump administration is approaching a sell-off with extreme caution, saying in a note quoted by CBS News that changes to Fannie and Freddie are moving at a “slower and more deliberate” pace than it has on other issues, such as tariffs. He wrote:
“Tariffs may have impacted the stock market, but they did not result in immediate price hikes at Walmart or Dollar General. By contrast, the price of mortgages will respond to each recap and release development. That makes the political cost more immediate and gives the President less room to alter positions as he has done on trade.”
Final Thoughts
The last thing homeowners or investors need, following tariffs and high interest rates, is a blow to lower rates and tighter lending criteria that stop people from buying homes. That could be a real possibility if the Fannie and Freddie sale is not executed seamlessly—and even then, it could cause a rate rise.
That’s why those who can afford to buy an investment now through nontraditional means—i.e., with cash as opposed to a conventional mortgage—should do so.
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Jeff Vasishta
BiggerPockets
Career journalist and active real estate investor who has written for publications over two decades.
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