Trump to privatize mortgage firms Fannie Mae and Freddie Mac

President-elect Donald Trump is set to make some big moves when he takes office on Jan. 20. Reportedly, Trump plans to privatize two of the largest government-owned mortgage companies, Fannie Mae and Freddie Mac.

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This risky step was emphasized by hedge fund tycoon and Trump-backer Bill Ackman, who posted his thoughts in a recent post on X (formerly Twitter).

Reportedly, Ackman is of the view that privatization would relieve the conservatorship of these creditors and, in doing so, may bring about substantial financial benefits to the federal government.

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Ackman highlighted Trump’s penchant for disruptive transactions, saying, “Trump is a big deal guy, and this would be the biggest deal the world has ever seen. I am confident he will get it done.”

Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are government-sponsored enterprises (GSEs) that play critical roles in the U.S. housing market. Both were created to expand the availability of home loans and make housing more affordable.

Fannie Mae was established in 1938 as part of the New Deal to provide liquidity to the mortgage market. Initially a government agency, it became a publicly traded company in 1968. Its goal was to purchase mortgages from banks, thereby enabling banks to lend more to homebuyers.

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Freddie Mac was created in 1970 to enhance competition in the secondary mortgage market. Like Fannie Mae, it buys mortgages from lenders, providing banks with capital to offer more loans.

Both entities help ensure that lenders have the resources to offer mortgages to a broader range of homebuyers. They primarily buy conforming loans, which meet specific criteria, and bundle them into securities that are sold to investors.

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During the 2008 financial crisis, both Fannie Mae and Freddie Mac faced severe financial distress due to their exposure to risky subprime mortgages. The U.S. government intervened, placing them under conservatorship, a status they still maintain today.

The general public, especially loan seekers will have to wait and see what this latest move could do for them or to them.