For those of you who don’t remember, on September. 6, 2008, the Bush administration took over troubled housing financing companies Fannie Mae and Freddie Mac. The government intervened in order to help shore up the U.S. economy during some of the darkest days of the Great Recession to prevent both banks from failing. The collapse of the housing market had left the two firms, which at the time financed more than half of all home loans in the United States, on the brink of bankruptcy. Fannie and Freddie received approximately $188 billion in bailout funds from the U.S. Treasury increasing the national debt to by $5 trillion which is estimated at a total of US $20.4 trillion. Today, Fannie Mae and Freddie Mac have remained in government conservatorship since 2008 even though the housing market has come back as well as profits.
However, it looks like in 2018, this will change. Now that the mortgage giants, Freddie Mae and Fannie Mac are stable, it looks like these companies will get out of conservatorship and be on their own again. It’s been 9 years since the government bailed out these two mortgage companies and it looks like in 2018 they could become privatized under the proposed House budget.
So what does this mean?
The bailout worked. The economy is is healthy. Fannie Mae and Freddie Mac are ready to be privatized. The House of Representatives believes that the federal budget recommends putting an end to corporate subsidies and taxpayer bailouts in housing finance.
However, is privatizing Fannie Mae and Freddie Mac the best is idea?
One potential problem is that the most popular mortgage — the 30-year, fixed-rate, pre-payable mortgage — probably would go away without a government guarantee. Private lenders are reluctant to take on the risk associated with that product.
In addition, mortgage rates are expected to rise to 4.25% to 4.50% by the end of 2017 and above 5% by the end of 2018.
If Fannie Mae and Freddie Mac become privatized, will the mortgage interest rates goes up?
The answer is most likely yes.
Currently, the government helps dictate these rates and when the two mortgage giants are on their own, you may see an increase somewhere between 5.25% – 6.25% between 2018 and 2019, if the mortgage companies are privatized.
So if you have been saving and are in the market to purchase a home, now may be your best time.