Privatization of Fannie Mae and Freddie Mac: Desirability and Feasibility
While the GSEs are not backed by an explicit Federal guarantee, the capital markets regard them as holding an "implicit guarantee" that privatization would remove. A change in status could affect mortgage markets in several ways. The costs of borrowing and credit enhancement -- typically lower for the GSEs -- would likely increase. Private firms that currently are securitizing nonconforming loans could compete with the GSEs within the conforming market.
Privatizing Fannie Mae and Freddie Mac could push conforming mortgage interest rates up between one-quarter and two-fifths of a percent, the report projects, reversing recent improvements in affordable lending and increasing homeownership rates, particularly for households traditionally underserved by the mortgage market. Privatization would also have important implications for the public purposes set out in Fannie Mae's and Freddie Mac's Federal charters, and would likely undermine the federally mandated goals set by HUD for GSE purchases of mortgage originations to underserved populations.
HUD finds that the GSEs' public purposes provide a substantial rationale for the current GSE system, and that none of the arguments cited by privatization advocates are compelling enough to support terminating their Federal charters.
*The online version of the publication "Privatization of Fannie Mae and Freddie Mac: Desirability and Feasibility" has been separated into two files. The file entitled "Privatization of Fannie Mae and Freddie Mac (*.pdf)" contains the text of the report in Adobe Acrobat format. The file "Charts (*.xls, *.exe)" is a self-extracting file that contains the charts, graphs, and tables in Excel and Harvard Graphics formats. To obtain a hard copy of this report or for technical assistance in downloading this document, please contact HUD USER at 1-800-245-2691.
Executable (*.exe) -- charts