6 Ways This Proposed Trump Move On Mortgage Lenders Could Affect The Cost of Buying a Home

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The first Trump Administration tried (and ultimately failed) to privatize Fannie Mae and Freddie Mac, the government-sponsored enterprises that back conforming mortgage loans in the U.S. Many pundits wonder if the incoming second Trump Administration will take a second stab at privatization.

“Privatization is not uncharted territory,” said Gary M. Golden, CEO of Propell Credit Union. “Remember that prior to 2008, both Fannie and Freddie were private, with an implicit federal guarantee.”

The federal government stepped in to take control of the GSEs in the financial crisis of 2008, in the wake of massive losses. It raised plenty of ire at the time: many voters complained that investors had enjoyed all the profits over decades of success, but taxpayers got stuck with the losses when the party turned into a hangover. 

Even so, the government takeover was never intended to be permanent.

“The law says they are eventually to be privatized,” Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania, told CNN. “But the stakes are very, very high as to how this is carried out.”

If President-Elect Trump does try again to privatize the two mortgage giants, how might that affect homeowners moving forward? 

Higher-Cost Loans for Higher-Risk Borrowers

Currently, the federal government backs all conforming mortgage loans through Fannie Mae and Freddie Mac loan programs. That reduces risk, when lenders package these loans and sell them to corporate investors who hold them long-term. 

But if investors see higher risk in these mortgage loans, they’ll demand higher returns.

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“Today, Fannie Mae and Freddie Mac enjoy government guarantees that give lenders low mortgage rates,” explained David Milo, founder of Independent Lending. “If such guarantees did not exist, Fannie Mae, Freddie Mac, and other lenders would seek higher returns and raise the rates, especially for lower-income and high-risk borrowers.”

In some ways, the federal government subsidizes the loans for higher-risk borrowers. That makes it easier for lower-income and first-time homebuyers to borrow mortgage loans. But that could disappear if Fannie and Freddie go fully private, with no government guardrails or support in place. 

Cheaper Loans for Low-Risk Borrowers

The inverse is also potentially true: if the government took its thumb off the scale, low-risk borrowers might enjoy cheaper loans. 

“On the other hand, middle- and higher-income borrowers with strong credit may take advantage of the more competitive private alternatives,” added Milo. 

Tighter Loan Restrictions

Reed Letson, the owner of Elevation Mortgage, sees fully private loan corporations putting stricter loan guidelines in place. 

“The guidelines would be tightened up, which would cause obtaining a mortgage approval increasingly difficult. Loan officers and underwriters would have to learn the new changes to the lending guidelines which will make the approval process longer and tougher.”

Ultimately, investors gauge debt investments on risk. If Fannie Mae and Freddie Mac can appease investors by tightening loan rules rather than raising interest rates, they’ll consider that another option on the table. 

Fewer Buyers, Lower Home Prices

If it becomes harder for borrowers with lower or less credit history to buy a home, fewer buyers can enter the market. 

And what happens when demand diminishes?

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“Less access to mortgage loans among lower-income and weaker-credit borrowers would shrink the pool of buyers,” observes Letson. “That could put downward pressure on home prices as competition would decrease.”

Of course, better housing affordability isn’t all bad news for buyers.

“On the flip side, those who do qualify would be able to negotiate better terms on the purchase of their home. Inventory would increase, resulting in price drops and extended days on the market,” he added.

More Portfolio Lenders for Homeowners

Some small, private banks and credit unions issue “portfolio loans” that they keep in their own portfolios. These loans don’t conform to Fannie or Freddie guidelines and can’t easily be bundled and sold. 

Banks issue these loans primarily to real estate investors. These loans cost more, but they’re more flexible and can close faster. We might see more local banks start offering portfolio loans to homeowners, to meet demand no longer met by conforming loans. 

In other words, we could see more “boutique” mortgage loans, customized for individual borrowers — and priced accordingly. 

More Innovation in Loans

The federal government isn’t exactly renowned for its innovation. As entirely private companies, Fannie Mae and Freddie Mac may themselves get more creative in drafting new loan programs. 

Perhaps we’ll see more loan terms offered, from 20- and 25-year loans up to 40-year loans. Or maybe they’ll break the pattern of three-, five-, and seven-year balloon terms to offer nine- or ten-year balloon loans?

“Privatization would modify the terms and conditions of a mortgage,” adds Milo. “It might increase the pace of lending innovation. Less homogenization can also increase inequality, however.”

Golden urges borrowers to stop panicking about possible changes.

“It is highly unlikely the incoming administration and Congress will approve a transaction that clearly harms homebuyers. Everyone in Washington knows the 2026 mid-term elections will be important to both political parties.”

If the second Trump Administration opens this can of worms, they won’t do so lightly. Expect guardrails in place to keep homeownership open to just as many Americans — regardless of who ultimately sits on the hook for profits and losses at Fannie and Freddie.