Trump’s Shocking Purge at Freddie Mac Results in CEO Firing and More Privatization Innuendos…

The mortgage market just got a Trump-sized shake-up, and if you own a home, are trying to buy one, or have even thought about a mortgage in the last 20 years, you should probably pay attention.

(Source: Giphy) 

Freddie Mac’s CEO Diana Reid just got canned, courtesy of Bill Pulte, the newly installed director of the Federal Housing Finance Agency. Pulte has been on a firing spree, axing not just Reid but also Freddie’s head of HR and other senior execs. This comes after Pulte restructured the boards of both Fannie Mae and Freddie Mac earlier this week, making it pretty dayum clear that the administration is tightening its grip on America’s biggest mortgage backers. (Which to be fair, makes sense—we all know what happened the last time we had a season of Mortgage Backers Gone Wild, right?) 

But, in this specific situation, what in the hell actually happened? Well, ICYMI, Freddie Mac and Fannie Mae don’t make loans themselves, but they buy mortgages from lenders, package them into securities, and guarantee them. Together, they back nearly half of all U.S. home loans—which means the people running these firms have a massive influence on mortgage rates and the housing market.

(Source: Washington Post) 

The problem? They’ve been under government conservatorship since the 2008 financial crisis, when the feds swooped in to bail them out. Now, Trump and his allies want to finally privatize them, which is why Pulte is cleaning house and installing his own people. Meaning, if Fannie and Freddie get privatized, the cost of borrowing could go up—which is a nice way of saying your mortgage might get more expensive.

However, right now, these two mortgage giants operate under federal oversight, which keeps rates somewhat stable. But if they go private, they’ll have to answer to shareholders, not just housing policy bean counters. That means higher profits will take priority, and that could mean higher fees, stricter lending standards, or just straight-up more expensive home loans.

(Source: Giphy) 

Analysts are already warning that privatization could put upward pressure on mortgage rates, which is exactly what this housing market doesn’t need. We’re already dealing with affordability issues, and if borrowing costs jump, good luck buying that three-bed, two-bath in the suburbs without selling a kidney. 

Now to be fair though, this idea isn’t exactly new. Trump tried to privatize Fannie and Freddie back in his first term, but it never got off the ground. Now, he’s back and he ain’t F’in around. For instance, some of his biggest supporters—including billionaire investor Bill Ackman, who owns shares in both companies—are pushing hard for it to happen this time.

(Source: Realtor.com) 

Why? Well, because Ackman and others stand to pump their bags with a boatload of money if these companies go private, and they’re making the case that it would be a win for taxpayers by freeing up government resources. But if you're a homebuyer? You probably don’t give a damn about shareholder returns—you just want a mortgage that doesn’t cost as much as a luxury car payment.

In the end, the real question is, should you and I be worried? Well, kinda. If privatization happens, expect a more expensive, less forgiving mortgage market. If you’re already locked into a low rate, you’re fine (see: All you 2020 homebuyers)—but if you’re house hunting, this could make affordability even worse. For now, the shake-up at Freddie Mac is just the first domino to fall. But if you see mortgage rates creeping up and lending getting tighter, don’t say you weren’t warned.

(Source: Giphy) 

In the meantime, keep your eyes on housing stocks and everything in between—because privatization could have a major impact within the markets. Of course, do what you will with this information and place your bets accordingly. As always, stay safe and stay frosty, friends! Until next time… 

P.S. Just when you thought our beloved congressmen couldn’t get any greasier, one Republican lawmaker decided to YOLO $175k into a stock—right before a major FDIC announcement hit. Lucky timing? Insider edge? You be the judge. We broke it all down inside this week's Stocks.News premium article—click here to check it out ASAP! 

Stocks.News does not hold positions in companies mentioned in the article.