Recent news about potential privatization of Fannie Mae and Freddie Mac – two cornerstone institutions in the U.S. housing finance system – have sparked interest across markets. As fixed-income investors, you may be wondering what this could mean for your portfolios and the broader market. Below, we provide a brief overview and initial thoughts, with more to come as details emerge.
A Quick History of Fannie and Freddie
Fannie Mae (Federal National Mortgage Association – 1938) and Freddie Mac (Federal Home Loan Mortgage Corporation – 1970) were created by Congress to support affordable housing by purchasing mortgages from lenders, packaging them into securities, and providing liquidity to the mortgage market. Fannie and Freddie back roughly $5 trillion in mortgage debt – about half the U.S. mortgage market (FHFA data, 2025). Initially private entities, they operated with an implicit government guarantee (market assumes government intervention in the event of default, with no formal or legally binding agreement). The 2008 financial crisis resulted in massive losses at these institutions, leading to federal conservatorship under the Federal Housing Finance Agency (FHFA), with the U.S. Treasury injecting capital to make that backing explicit. Since then, the government has owned and overseen them via the FHFA, ensuring their stability while collecting profits. Over $300 billion has been repaid to taxpayers to date.
Why Privatization Now?
The Trump administration, and the new FHFA Director Bill Pulte (confirmed March 13, 2025), is exploring privatization to reduce government involvement in the housing market. This aligns with the Trump administration’s broader push to shrink the federal government’s footprint and could unlock significant value – some estimate privatized entities could be worth over $330 billion. Private sector interest, including hedge funds and retail speculators alike, has also surged, with Fannie and Freddie preferred stock prices soaring ~200% since November 2024 on privatization speculation.
Short-Term Impacts: What to Watch
Grandfathering Uncertainty: Existing agency mortgage-backed securities (MBS) like the ones many institutional investors own, which carry explicit government backing, are unlikely to lose that status. However, a transition to private ownership could alter the perceived safety of future issuances, potentially affecting yields and liquidity.
Rates and Portfolios: Privatization could push mortgage rates up if investors demand more return for new securities lacking a government guarantee. For fixed income investors, this could mean slight yield increases on new agency MBS issuance, though short-term disruption should be limited given the FHFA’s cautious stance. Pulte has emphasized stability over hasty changes, focusing first on efficiency and fraud reduction.
Pros and Cons
Pros: Privatization could foster innovation in housing finance, reduce taxpayer risk, and free up capital – potentially redirected to public priorities like infrastructure. A successful transition might also boost market confidence.
Cons: Without government backing, borrowing costs could rise, impacting housing affordability – a concern for local economies. Market volatility is another risk if the shift isn’t carefully managed.
Our Take
For now, privatization remains in the study phase, with no immediate overhaul expected. The FHFA and Treasury are mindful of mortgage rate impacts, suggesting a measured approach. For DBIA clients, the short-term effect on your fixed-income holdings are negligible, but we’ll continue to track any changes. We’ll keep you updated as the administration clarifies its plans.
Please reach out with questions or to discuss how this might affect your specific portfolio.
Contact Information
| Ben Streed, CFA | Chief Investment Officer | Benjamin.Streed@deepblue-inv.com | 813-440-5088 |
| Dan Marro, CFA | Portfolio Manager | Dan.Marro@deepblue-inv.com | 813-321-3253 |
| Vito Resciniti | Market Strategist | Vito.Resciniti@deepblue-inv.com | 813-556-9774 |
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