A $4 Trillion Risk Tied to Freeing Fannie and Freddie Could Hurt US Homebuyers

Freddie Mac headquarters

The Trump Administration’s urgency to free Fannie Mae and Freddie Mac from federal control has some on Wall Street worried that it might happen without the U.S. government providing an explicit backstop of the companies’ $4.7 trillion of mortgage securities. Credit rating companies, financial firms and even real estate agents claim that such a move would be a disaster. They’re warning that ending Fannie and Freddie’s conservatorships absent a clear guarantee of their securities might prompt big asset managers to curtail their bond buying. That in turn could dry up some of the financing that keeps the mortgage market humming, making it harder and more expensive for consumers to get home loans, they say.

“Conservatorship is safe. An explicit guarantee is safe. Keeping Fannie and Freddie as they are and privatizing them is a dangerous experiment,” said Michael Bright, president of the Structured Finance Industry Group and the former acting president of Ginnie Mae. He co-authored a 2016 plan that proposed turning Fannie and Freddie into lender-owned insurers that could issue mortgage securities with federal backstops.