T
he Federal Housing Finance Agency's (FHFA) recent signals of loosening control over Fannie Mae and Freddie Mac have sparked a debate about the potential impact on mortgage rates. While some experts predict a rise in rates, others believe it could be temporary, depending on how other fees and regulations are adjusted.

    Since the 2008 financial crisis, these government-sponsored enterprises (GSEs) have been under government control, providing a guarantee to protect investors when homeowners default on their mortgages. If privatized, investors would likely benefit, but homebuyers might face higher rates. However, if unnecessary fees and regulations are reduced, mortgage rates could decrease.

    The FHFA's new head, William Pulte, has made changes to the Fannie and Freddie boards, naming himself chairman of each. This move has led some to speculate about a potential shift towards privatization. While Pulte has stated that privatization is not his top priority, experts believe it could still happen.

    "It would mean that mortgage rates would increase – definitely," said Laurie Goodman, founder of the Housing Finance Policy Center at the Urban Institute. However, Phil Crescenzo Jr., vice president of Nation One Mortgage Corporation's Southeast Division, thinks rates might rise initially but eventually come down once there is more certainty around privatization.

    The market's immediate reaction to a sudden shift would be uncertainty, leading to an increase in mortgage interest rates due to the removal of the GSE guarantee. However, reduced regulation could lead to lower rates by cutting unnecessary fees and providing more offerings. The outcome depends on how far Fannie and Freddie are willing to go in reducing their costs.

    Today's market is different from 2006, when looser rules led to toxic loans that contributed to the Great Recession. With better economic conditions, mortgage rates could decrease over time, but not immediately. Real estate agents should focus on understanding the current lending landscape and its changes to help clients navigate the shifting market.

    Privatization of Fannie Mae and Freddie Mac would take time, with many proposals needing to pass through legal mechanisms before taking effect. "There's going to be a lot of proposals, but until it actually is passed through the legal mechanisms that are already in place, it's going to be a while before it actually hits the market," Crescenzo said.