How would privatizing Fannie Mae, Freddie Mac impact buyers? 

Among the many economic changes that President Donald Trump has implemented in the first several weeks of his administration, one that could create big shifts in the housing market is the potential privatization of Fannie Mae and Freddie Mac.

William Pulte, the new head of the Federal Housing Finance Agency, appears to be laying the groundwork for such a change, even though he has said privatization of the government-sponsored enterprises (GSEs) is not one of his top priorities. Shortly after his tenure began last month, Pulte overhauled the Fannie and Freddie boards and named himself the chairman of each, all while shakeups were taking place at the FHFA.

The federal agency has regulated Fannie and Freddie since the 2008 financial crisis. The oversight provides a government guarantee to protect investors when homeowners default on their mortgages. If that oversight goes away, it could be a boon to investors — but homebuyers would be the ones to pay the price.

"It would mean that mortgage rates would increase — definitely," Housing Finance Policy Center at the Urban Institute Founder Laurie Goodman told The New York Times.

The market would have an 'immediate reaction'

It's probably more complicated than that, said Phil Crescenzo Jr., vice president of Nation One Mortgage Corporation's Southeast Division. Rates might go up at first, he added, but would eventually come down once there is more certainty around how privatization would work.

"It's a little harder to have an answer, because it's going to depend on other conditions," Crescenzo told Real Estate News. "If that is really a push for FHFA to say 'OK, this is what we're going to do, no more conservatorship.' How would that unfold?"

Whenever a sudden shift occurs, market uncertainty is the result, and "that's going to cause immediate reaction," he said.

With privatization, mortgage interest rates could rise because the guarantee of a GSE would go away, making the investment riskier.

However, having less regulation could cut unnecessary fees and provide more offerings, resulting in lower rates, Crescenzo said. This would depend on how far Fannie and Freddie are willing to go.

Today's market is very different in terms of regulation compared to 2006. Back then, looser rules led to the kinds of toxic loans that emerged when the housing market began to slow. This eventually led to the Great Recession.

"Would this market be deemed more risky and rates go up, or are these institutions collecting so many fees and costs that action rates would come down?" Crescenzo wondered. Due to the initial uncertainty that would come with privatization, he expects rates would rise.

"But with better economic conditions you could see rates come down — not immediately, though," he said.

How should agents handle privatization?

While Fannie and Freddie aren't directly involved in a homebuyer's loan, the organizations do back the financing while influencing loan offerings and rates. If Fannie and Freddie move toward privatization, it'll be important for real estate agents to do their research on the shifting lending landscape so that they can help their clients understand the changes.

"Master what the present day offerings are," Crescenzo advised. "You gotta focus on that."

Despite the breakneck speed with which the Trump administration has been changing other aspects of the U.S. economy, privatizing two huge organizations would take time.

"There's going to be a lot of proposals, but until it actually is passed through the legal mechanisms that are already in place, it's going to be a while before it actually hits the market," Crescenzo said.