Freddie Mac (FMCC) and Fannie Mae (FNMA) stocks surged this week amid speculation that the Trump administration is loosening its control over the mortgage giants.

Yahoo Finance Senior Reporter Claire Boston discusses the potential impact on mortgage rates if these government-sponsored enterprises are privatized.

To watch more expert insights and analysis on the latest market action, check out more Wealth here.

Video Transcript

00:00 Speaker A

The stocks of Freddie Mac and Fannie Mae got a boost this week amid new signs that the Trump administration could loosen the government's grip on the mortgage giants. US Treasury Secretary Scott Besant appeared to suggest on a podcast that the government stakes in Fannie and Freddie could land in a new US sovereign wealth fund. And previously the Wall Street Journal has reported that Trump has considered the privatization of Fannie and Freddie. So, what could that look like? Here with more, we've got senior housing reporter, Claire Boston. Claire, let's just take a step or two back here first. What are Freddie Mac and Fannie Mae for those who want to get brought up to speed here?

00:44 Claire Boston

Right, this is a very complicated situation. Um so Fannie and Freddie are what we call government sponsored enterprises. They were created by Congress to help support the mortgage market. They don't make mortgages, but they buy up mortgages from lenders like banks. And the idea there is that then banks have more capital, they can turn around, lend more mortgages. Uh it's one of those things that is very quietly sort of powering the US housing finance engine here.

01:18 Speaker A

Where are these entities at in their phases of evolution and and how they've become what they are today?

01:26 Claire Boston

Right, so uh we have to kind of go back to the 2008 financial crisis. Um as you may recall, um Fannie and Freddie, they bought up a bunch of risky mortgages, um and they were all going bad and uh they nearly failed. Um the government was worried that if Fannie and Freddie collapsed, uh they would take the whole mortgage finance system down with them. And uh so what the government did is they took them under what is called a conservatorship. And so since 2008, uh the government has essentially controlled Fannie Mae and Freddie Mac. This whole thing was supposed to be temporary, but just given how important they are to the mortgage markets, uh they have not been released from this conservatorship because in part of concerns about what would happen to the mortgage market.

02:27 Speaker A

And so with that in mind, why does this matter for everyday people at the end of the day?

02:37 Claire Boston

Right, so uh you know when I was talking about those concerns for the mortgage market, one of the big fears is that if Fannie and Freddie are released from government control, they will be seen as riskier credits, and that could ultimately make mortgage rates go higher. Um Brad, we talk a lot about mortgage rates. They are pretty high right now at about, you know, 6.7%. And um you know, there's a lot of fear politically that if they are, Fannie and Freddie are released and uh something goes wrong, investors get worried, mortgage rates would go higher and that would hurt average Americans. So, it's a kind of a pickle for the Trump administration to be in. Um there are various ways they could try to release these um GSEs as we call them. Um but uh they're very concerned. They don't want to create a perception that they have hurt the mortgage market here since so many people rely on their homes for their wealth.

03:53 Speaker A

And so from what we're hearing from the administration, what what are they saying about mortgage rates as well?

04:02 Claire Boston

Right, so Secretary Besant has specifically said I am watching mortgage rates. Any sort of release of these GSEs are going to depend on mortgage rates. Um folks I talked to, it's hard to put a number on it, but they say typically mortgage rates could go up by, you know, anywhere from like 20 basis points to a point and a half, depending on how these GSEs are released. So, it's something that the administration is aware of and watching.

04:40 Speaker A

Claire, excellent breakdown. We'll continue to monitor any developments in the story as well.

04:46 Claire Boston

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