President Donald Trump has announced plans to privatize mortgage giants Fannie Mae and Freddie Mac, which experts warn could push US homeowners’ monthly payments higher and exacerbate the country’s housing affordability crisis. The two firms, currently under federal supervision, play a crucial role in the US mortgage market, guaranteeing about 70 percent of mortgages made in the country.
Privatizing Fannie Mae and Freddie Mac would shift risk to financial investors, potentially raising mortgage rates, which are already hovering close to 7 percent. This could make it even harder for aspiring homebuyers and existing homeowners to afford housing.
Experts say that without explicit government guarantees, bond investors will command a higher risk premium, leading to higher mortgage rates. Even with such guarantees, the impact on mortgage rates is still uncertain, depending on how the companies are privatized.
Hedge fund managers and investors have expressed support for privatizing Fannie Mae and Freddie Mac, citing potential benefits of increased efficiency and cash infusion for the government. However, experts warn that privatization could disrupt the fragile US housing market.
The plan has sparked debate among policymakers, industry leaders, and economists, who weigh the potential benefits against the risks of exacerbating the housing affordability crisis. As Trump weighs his options, he must carefully consider the implications of this move on American households.
Source: https://www.newsweek.com/how-us-mortgages-rates-change-fannie-mae-freddie-mac-public-2076201