What Trump's latest GSE comments could mean for mortgages

Experts are weighing the future of mortgage rates and guarantee fees following the Trump administration's strong yet mixed messaging on the future of Fannie Mae and Freddie Mac.

President Trump in a Truth Social post Tuesday said he's working on taking the government-sponsored enterprises public, stating they would retain their "implicit guarantees," and that he would oversee the companies. It was the clearest statement yet from the administration on the GSEs' future, but larger questions remain. 

Federal Housing Finance Agency Director Bill Pulte in a CNBC interview Wednesday suggested Trump had more power over the situation than in his first term, as he can now hire, and fire, the FHFA leader. He also said the GSE reform Trump pursues might not be in line with the general speculation there has been about it.

"The president has not said anything that he wants to end conservatorship. We're studying actually potentially keeping it in conservatorship and taking it public," said Pulte. "However this would be entirely up to the president. He is essentially the conservator." 

Pulte, who declined to share his own conservatorship recommendation said, "Whether the president decides to sell a small piece or what have you" is entirely up to Trump.

Experts who spoke to National Mortgage News Wednesday were puzzled by Pulte's comments.

"The major problem with that is, with the entities being in conservatorship, they can't raise capital," Ed Groshans, senior policy analyst at Compass Point Research and Trading, "So I still don't understand how that would function."

The implicit guarantee mention, however, gave industry experts fuel for speculation around mortgage rates and guarantee fees. Unlike Ginnie Mae, which securitizes its loans with the full explicit backing of the U.S. government, Fannie Mae and Freddie Mac's support from the government historically was implicit. That changed with the government establishing direct ties to the GSEs to prevent them from failing during the Great Financial Crisis.

How could lenders and borrowers be impacted by the change to the GSEs?

Some industry stakeholders, acknowledging a lack of specifics from the administration, said a conservatorship exit could create upward pressure on rates. 

"Exiting … could potentially harm mortgage rates through increased guarantee fees, uncertainty around the implicit guarantee, or changes in the GSEs' structure and operations," said Jason Obradovich, chief investment officer at New American Funding, in emailed comments. 

Borrowers could also face higher interest rates due to smaller GSE credit boxes that would mean they buy fewer loans, resulting in more mortgages losing the benefit of the guarantee and experiencing less favorable pricing, he added.

A separate capital markets analyst who declined to be identified said the fees lenders pay for the guarantee are likely to rise as they're an easy mechanism to use to generate money from the GSEs. Such a move would nudge rates up as lenders would need to charge consumers higher prices for loans to cover the g-fees.

"The irony is that Trump is all about lower interest rates and lower mortgage rates," the analyst said. "So you can't have your cake and eat it too, so we're waiting for that."

The Urban Institute earlier this year also predicted g-fees could rise 10 basis points to 25 basis points in an exit scenario.

Meanwhile, mortgage rates also could rise if the Trump administration failed to back a guarantee considered to be as strong as the one the market is currently pricing in, experts noted. 

Others rejected concerns that guarantee fees or mortgage rates would shoot up. At his confirmation hearing in February, Pulte told lawmakers any conservatorship exit should be done carefully to avoid pressuring interest rates. 

"If they can do this with the guarantee remaining in place, then it really should not impact mortgage rates," said Bose George, an analyst at Keefe, Bruyette and Woods. 

Groshan also said he expects mortgage rates to remain stable based on an analysis of the spreads of GSE mortgage-backed securities to the 10-year Treasury from the time they entered conservatorship to today.

"Any removing them from conservatorship will not have a material impact, any upward impact on mortgage rates," he said. "The caveat there being is that the line of credit that the GSEs have with the Treasury must stay in place."

The investor outlook and a timeline for release

Stock analysts were hesitant to predict the amount of money the GSEs would raise in any public offering. Administration officials have also not made specific plans for the Treasury's senior preferred holdings. 

"While we would expect the shares to respond positively, we continue to think that the common shares have significant dilution risk if the GSEs were to be privatized and we see meaningful downside risk," wrote George in a flash note earlier Wednesday. 

Following Trump's post, Fannie Mae stock rose 2% Wednesday to close at $10.78 per share, while Freddie Mac's share price climbed 5% to $8.00 per share. 

Separately, BTIG analysts in a report Wednesday afternoon also said they increasingly expect to see a trickle-down effect from a GSE listing for the mortgage finance industry. 

"It would likely expand the base of inventors paying attention to the (financial institutions group) space, and raise awareness for the ecosystem of stocks and issuers which are inherently linked to the GSEs," wrote BTIG.

Predictions regarding the timeline of an exit have varied significantly; former Freddie Mac CEO Don Layton recently theorized the GSEs would remain in limbo through 2028. Given Trump's two social media posts on the topic in a short time frame experts were particularly bullish. 

One capital markets analyst who did not wish to be identified predicted a GSE conservatorship exit before the 2026 midterm elections. Groshans, stating greater than 80% odds Trump will release Fannie and Freddie, offered a 2027 guess. 

"Barring any exogenous event like COVID, China, attacking Taiwan, or something like that, they have a good runway here," he said. "They have a good team, and I think that that is a very good shot that they're going to get it done this time."