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Many pundits wonder if the incoming second Trump Administration will take a second stab at privatization.
Privatization is not uncharted territory, said Gary M. Golden, CEO ofPropell Credit Union.
Remember that prior to 2008, both Fannie and Freddie were private, with an implicit federal guarantee.
Even so, the government takeover was never intended to be permanent.
But the stakes are very, very high as to how this is carried out.
That reduces risk, when lenders package these loans and sell them to corporate investors who hold them long-term.
But if investors see higher risk in these mortgage loans, theyll demand higher returns.
In some ways, the federal government subsidizes the loans for higher-risk borrowers.
That makes it easier for lower-income and first-time homebuyers to borrow mortgage loans.
The guidelines would be tightened up, which would cause obtaining a mortgage approval increasingly difficult.
Ultimately, investors gauge debt investments on risk.
And what happens when demand diminishes?
Less access to mortgage loans among lower-income and weaker-credit borrowers would shrink the pool of buyers, observes Letson.
That could put downward pressure on home prices as competition would decrease.
Of course, better housing affordability isnt all bad news for buyers.
Inventory would increase, resulting in price drops and extended days on the market, he added.
These loans dont conform to Fannie or Freddie guidelines and cant easily be bundled and sold.
Banks issue these loans primarily to real estate investors.
These loans cost more, but theyre more flexible and can close faster.
In other words, we could see more boutique mortgage loans, customized for individual borrowers and priced accordingly.
More Innovation in Loans
The federal government isnt exactly renowned for its innovation.
Perhaps well see more loan terms offered, from 20- and 25-year loans up to 40-year loans.
Privatization would modify the terms and conditions of a mortgage, adds Milo.
It might increase the pace of lending innovation.
Less homogenization can also increase inequality, however.
Golden urges borrowers to stop panicking about possible changes.
It is highly unlikely the incoming administration and Congress will approve a transaction that clearly harms homebuyers.
Everyone in Washington knows the 2026 mid-term elections will be important to both political parties.
If the second Trump Administration opens this can of worms, they wont do so lightly.
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