Written by
Ginger Ellis, Members Mortgage Services, Vice President of Sales and Marketing
gingere@mms.coop | 1.866.441.4447 ext. 273 | mms.coop
Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) support the liquidity of the 
mortgage market by buying loans from mortgage lenders, bundling them into mortgage-backed securities, and selling those securities to investors. The GSEs also standardize mortgage guidelines and increase the availability and affordability of mortgages.
Fannie Mae and Freddie Mac were privately held companies operating as quasi government agencies before 2008. After the housing market crashed that year, they were placed into a government conservatorship, where they have remained. This was intended to be temporary and mortgage industry observers have debated the complexity of unwinding the current system to limit government involvement for years. This buzz has increased recently as the Trump administration has once again indicated the desire to privatize the GSEs.
Let’s explore what privatization could mean for your members looking to purchase a home:
- Privatization could trigger increased innovation, or shut it down
Mortgage lenders may have more freedom to go outside of the box to create new products that could reach more members. Privatization could bring in additional options for interest rates, loan durations or down payment requirements, based on the appetite of investors. On the other hand, new investors may move forward cautiously by tightening credit and product offerings.
- Long-term, fixed-rate mortgages may be a thing of the past
Without an explicit or implied government guarantee, the investor community may be unwilling to buy long-term, fixed rate investments. It is unknown how the securities market will react to the potential loss of a government backstop.
- Rates may increase (at least temporarily)
If government backing is removed, the GSEs would answer to investors who could demand higher yields in return for taking on greater risk. Mortgage rates would directly reflect market conditions. Private insuring taking the place of government backing would certainly be more expensive, meaning a spike in interest rates.
- Accessibility could be limited for younger homebuyers, distressed local neighborhoods and less qualified borrowers
The social goals of the GSEs, such as promoting homeownership and providing affordable housing, could be negatively impacted. The current administration has already started making moves to limit these programs. Programs geared toward first-time homebuyers and communities typically underrepresented in the housing market will likely go away.
- Investor confidence may wane
Mortgage liquidity may decrease as some investors, particularly those sensitive to credit risk, might be less inclined to invest in mortgage-backed securities.
- A hybrid solution is likely
Many ideas of how Fannie Mae and Freddie Mac might emerge from conservatorship have been put forth in the last decade. Along with the most recent dialog from the current administration, most solutions maintain a strong government role in the future of the GSEs. Rather as a strong regulator or in ultimate control, most recognize that the mortgage industry is too important for the government to chance complete privatization.
Privatization would take years to execute properly and quite a bit of change can happen in the market between now and then. Industry leaders are closely monitoring the administration and anytime there is uncertainty, short-term rate volatility follows. That said, we don’t anticipate the disappearance of 30-year mortgages or interest rates skyrocketing overnight.
As a mortgage CUSO, Members Mortgage Services remains steadfast in helping Credit Unions provide smart mortgage options to fit the members’ personal financial readiness and goals. MMS works directly with the GSEs, manage that relationship along with the wants and needs of our partner Credit Unions. We want to encourage members to continue using sound financial judgement to achieve homeownership by saving for a down payment; taking advantage of available grant programs; and locking in a favorable mortgage rate when possible.
Members Mortgage Services helps you maintain the relationship with your members through the loan process and after closing, while providing a full array of mortgage products; a customized, best-in-class mortgage origination experience; access to the secondary market with co-branded servicing; and protected portfolio loan sub-servicing.
Members Mortgage Services, LLC is a Midwest mortgage CUSO licensed and authorized in Nebraska, Kansas, Missouri, Iowa, Oklahoma, Arkansas, Colorado, Illinois and Texas. NMLS #760008. Equal Housing Lender.
