Trump’s Proposed Deregulation of Fannie Mae and Freddie Mac Could Cost Homebuyers ‘Between $1,800 and $2,800’ Annually

A proposed deregulation of the home loan market that Donald Trump is widely expected to pursue could have significant consequences for new homebuyers, especially those with low incomes, CNN reported on Monday. Trump is likely to push for the privatization of Fannie Mae and Freddie Mac, two government-sponsored mortgage giants that were placed under federal conservatorship after the 2008 financial crisis.

While Trump attempted this during his previous term, he was unsuccessful. If privatized, the government’s multibillion-dollar stake in these entities would be eliminated, but the move could introduce complexities into the housing market that could raise costs for homebuyers.

Fannie Mae and Freddie Mac’s primary function is to repurchase existing mortgages and repackage them for investors. This ensures stable cash flow and allows mortgages to be issued at more affordable rates for lower-income buyers. They were brought under government control to stabilize the housing market, particularly during the risky subprime loan era.

Experts warn that re-privatizing these entities could drive up mortgage costs. According to Mark Zandi, chief economist at Moody’s, privatizing Fannie Mae and Freddie Mac could cost the typical American taking out a new mortgage an additional $1,200 annually. However, when adjusting for current home prices and interest rates, the cost could rise to between $1,800 and $2,800 per year for a typical mortgage holder, with the heaviest burden falling on lower-income buyers and those with lower credit scores.

Privatization could also make mortgages riskier for investors, possibly leading to higher interest rates on 30-year fixed loans. If bondholders perceive mortgages as more volatile, they could demand higher returns, further increasing the cost of homeownership.

Republicans have long argued that the federal conservatorship of Fannie Mae and Freddie Mac should not be permanent, and they have blamed the institutions for contributing to the 2008 financial crisis. However, evidence shows that Fannie Mae and Freddie Mac’s share of high-risk loans actually decreased during the housing bubble, debunking this argument.

With Trump’s re-election already bringing uncertainty to mortgage markets and rates climbing to 6.8%, the proposed deregulation could introduce further challenges for potential homebuyers.