The Trump administration may privatize Fannie Mae and Freddie Mac — and it could disrupt the nation’s housing-finance system – MarketWatch

The Trump administration may privatize Fannie Mae and Freddie Mac — and it could disrupt the nation’s housing-finance system – MarketWatch

A fully privatized mortgage market will fundamentally change mortgage credit. The US is the only mortgage market in the world with a fixed rate for 30 years. It only works because most mortgages have no credit risk.

Once you remove the govt guarantee you then have both credit risk and interest rate risk.  Investors facing both types of risks would drive mortgage rates up.

Take away the government guarantee and you remove a large investor base. Finally, the US MBS market is one of the largest capital markets in the world. Without a govt guarantee (implied or otherwise) severe disruption is a likely outcome. Especially with a privatisation that may be rushed through in less than a month.

The US dodged a bullet in 2009 when most of the world treated the US MBS market as de facto full faith and credit (even though it wasn’t). Remove that pillar from the mortgage market and downside risks are immeasurable.

https://www.marketwatch.com/story/the-trump-administration-may-privatize-fannie-mae-and-freddie-mac-and-it-could-disrupt-the-nations-housing-finance-system-11606208076

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