Trump's proposal to take Fannie Mae and Freddie Mac public

The Fannie Mae building in Reston, Virginia — The government's subsidy "should make homes more affordable. But it doesn't."

(Image credit: Kent Nishimura / Bloomberg via Getty Images)

The time has come to set Fannie and Freddie free, said Gary Labarbera in the New York Daily News. The two U.S. mortgage giants "are as healthy as they have ever been." They have returned $300 billion to the government, more than repaying their $191 billion bailout in 2008. That's why President Trump's proposal last week to take Fannie Mae and Freddie Mac public is a sound idea. The real payoff for taxpayers will come if the Treasury finally sells off its 80% stake in what would be the largest stock offering in history. "Depending on how it is structured, the government can get 85% or more of the proceeds from this transaction—or at least $150 billion in new, unallocated money." That money could be used to support the construction of new housing and ease the affordability crisis that has currently frozen the real estate market.

Now's not the time to rock an unsteady boat, said Natalie Wong in Bloomberg. Fannie and Freddie "buy and package home loans" into mortgage-backed securities that get sold to investors. Currently, those securities are guaranteed by the federal government. Removing that guarantee makes them riskier investments, causing home mortgage rates to go up. According to an analysis from the real estate site Redfin, the act of simply privatizing Fannie and Freddie could translate "into a more than $40,000 increase in mortgage payments over the life of a 30-year loan" for the buyer of a median-priced home. But hanging on to Fannie and Freddie for too long invites another crisis, said John H. Cochrane and Amit Seru in The Wall Street Journal. They "now back more than 60% of new mortgages, compared with roughly 45% before the financial crisis." When you add Federal Housing Administration and Veterans Affairs loans, the number rises to 85%. The government's subsidy "should make homes more affordable. But it doesn't." It has just helped push home prices higher than ever, and the government is "again on the hook" if they tumble.

Investors still hold shares in Fannie and Freddie stock, and they have been pushing hard for the government to give up control, said Felix Salmon in Axios. Hedge fund billionaire Bill Ackman, an ardent Trump supporter, has been especially outspoken in urging privatization. But this is not the first time the U.S. government has sought to get out of the mortgage guarantee business. The Biden administration, too, wanted to end the conservatorship but didn't "find a way to do so." Taking Fannie and Freddie private enjoys broad support. But doing it in a way that "doesn't destabilize the housing market or unnecessarily raise mortgage rates" is a challenging proposition.