Most of Orion’s brokers know that Fannie Mae and Freddie Mac were put into conservatorship in 2008 when the Federal Government feared their collapse, and the Federal Housing Financing Agency was created to oversee their activities. Anyone can buy stock in the companies, and their shares have tripled since the end of 2024. Recently new comments from Trump administration officials and aboard shake-up at the companies drew fresh attention to their potential release from government control.

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But beyond the stock market, housing experts see plenty of reasons to be skeptical about the end of an arrangement that dates back to the financial crisis. The biggest one? Privatization will probably send mortgage rates higher. There is no reason for them to go lower if they don’t have the U.S. Government backing them up.

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The Trump administration is considering sweeping changes to a crucial piece of the US housing ecosystem at a time when affordability is near an all-time low and home sales are mired in a years-long slump. Borrowers should be reminded that Fannie Mae and Freddie Mac don’t make mortgages, but they play a crucial role in lending by buying up mortgages from banks and other lenders and packaging the min to bonds. The system frees up money for more loans.

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Bonds backed by residential mortgages are more than a $10 trillion market, and investors' willingness to buy those bonds helps keep Fannie and Freddie’s borrowing costs, and by association, 30-year mortgage rates, lower than they might otherwise be.

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Today, mortgage bonds are seen as a good bet by investors in part because Fannie and Freddie have the government's backing and share its top credit ratings. Brokers should know that a major hurdle to privatization is how to preserve at least some of that backing. If investors perceive a private Fannie and Freddie as riskier, the companies will have to pay more to borrow, which would likely mean mortgage borrowers will pay more too.

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Yes, the conservatorship arrangement was intended to be temporary. The idea of releasing the companies from government oversight has some bipartisan support, but it never became a reality across multiple presidential administrations because of concerns about mortgage market disruptions.

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In recent years, Fannie and Freddie returned to profitability, paid back the government, developed new methods to shift credit risk away from taxpayers, and the housing market recovered, and homeowner equity sits near record highs. But Fannie and Freddie would need some sort of government guarantee when they go private to continue without disruption. Even a return to an implicit guarantee would likely raise mortgage rates, probably by .250 percent; without the guarantee it’s probably 1-1.5 percent, similar to current non-QM rates.

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This is a situation that Orion’s management is watching closely, especially how it may impact every broker, borrower, and lender in the industry. It will take many months to create a viable plan that doesn’t throw residential lending into chaos.

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