For millions of Americans, buying a home right now isn't easy. Any change in the mortgage market has the potential to impact you or a loved one.
President Donald Trump has recently teased on social media his desire to change the operations at Fannie Mae and Freddie Mac—government enterprises that are involved in around 70% of the country's mortgages.
We were wondering how that might impact the housing market going forward.
What Fannie and Freddie Do
Let's start by explaining what exactly Fannie Mae and Freddie Mac do.
Fannie Mae and Freddie Mac stand for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, respectively. Both are known as Government-Sponsored Enterprises and operate in essentially the same way.
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Fannie Mae is the older of the two and was established in 1938 by President Franklin Roosevelt. Its mission, in part, has always been to encourage banks to offer home loans on favorable terms to more Americans.
When a person wants a mortgage from a bank, the bank provides a list of qualifications and offers a mortgage if the person meets them.
The person can then buy a home.
However, the bank often sells the mortgage to Fannie Mae or Freddie Mac, allowing it to offer more mortgages.
Fannie Mae and Freddie Mac then take the mortgage, combine it with other mortgages, and sell it as a product to investors, who often like buying these products because of the U.S. government's involvement.
"If Fannie and Freddie were to be, you know, kind of dismantled, there would definitely be some short-term pain for homebuyers," Steven Glick, the director of mortgage sales at Home Abroad, said.
Glick warns that if Fannie Mae and Freddie Mac didn't exist, buying a home could become financially harder.
To be clear, Fannie and Freddie are not expected to be "dismantled" by President Trump. However, changes in their operations are anticipated.
Imperfect history and possible change
Fannie Mae and Freddie Mac haven't had a perfect history.
In 2008, during the housing crisis, both needed a government bailout after years of taking on high-risk loans. President George W. Bush placed them in a government conservatorship as a result, where they have remained.
Now, President Trump is considering a change, writing on social media: "Our great Mortgage Agencies, Fannie Mae and Freddie Mac, provide a vital service to our Nation by helping hardworking Americans reach the American Dream—Home Ownership. I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES."
Glick suggests that Fannie and Freddie could probably make more money and save taxpayer dollars if the president changes the status quo. However, he notes that there is a risk.
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"There is tons of money to be made. And it's probably a little restricted a little bit today," Glick said.
"My fear is really that clients are going to, or customers are going to be susceptible to higher fees," he added.
The Democratic leader in the Senate, Chuck Schumer, has already criticized the White House over one possible idea involving the housing giants.
In a statement to the Scripps News Group, Schumer stated, "Experts have warned for years that privatizing Fannie and Freddie—which finances 70% of the American mortgage market—would threaten the financial security of middle-class Americans, making it harder and more expensive to buy a home."
Regardless of the changes President Trump implements, Glick asserts that the details will matter.
"It's paramount more than ever to self-educate," he said.
