A MARTÍNEZ, HOST:
It's tough to buy a home these days with housing prices and mortgage rates both high. And now there's another potential wrinkle. Big changes could be coming to Fannie Mae and Freddie Mac, government entities that make mortgages more affordable. NPR's Laurel Wamsley is here to talk us all through this and what it could mean for homebuyers. So, Laurel, what's happening now under the Trump administration?
LAUREL WAMSLEY, BYLINE: Yeah, well, there's some real upheaval happening at these two critical players in the housing market, Fannie Mae and Freddie Mac. They're companies that operate under a government charter, so they have a unique position. And over the last couple of weeks, the CEO of Freddie Mac was fired and other senior executives placed on leave. The majority of the board members at Fannie and Freddie were also fired. All of this happened under the leadership of William Pulte, who was recently sworn in as the director of the agency that regulates Fannie and Freddie. He's the grandson of one of the largest American homebuilders. And as part of the shakeup, he was installed as the chairman of Fannie and Freddie, too. The agency that oversees those companies told NPR it had no comment. All of this has many anticipating that even bigger changes could be coming.
MARTÍNEZ: Wow, bigger changes. So why are these changes at Fannie and Freddie raising such big concerns?
WAMSLEY: Well, because of how central they are to the whole housing market. Fannie and Freddie don't make loans themselves directly to homebuyers, but they support the whole housing market because they buy up loans that banks and other lenders make. And then they sell bundles of those loans to big investors. The result is a very stable mortgage market that makes homeowning more affordable. For instance, Fannie Mae created the 30-year fixed-rate mortgage. In other countries, the interest rate a homeowner pays will change from year to year. And there's also the understanding that the U.S. government will back up Fannie and Freddie if they run into trouble, which is exactly what happened in 2008.
MARTÍNEZ: Yeah, that's when Fannie and Freddie got a government bailout.
WAMSLEY: That's right. In the 2008 financial crisis, a bunch of mortgages went into default, and it was disastrous for Fannie and Freddie's portfolios. Then the U.S. government took them over, and it still controls them today. That's a status called conservatorship. Of course, the financial crisis ended a long time ago, and some Republicans say it's past time for the government to stop playing this role and for Fannie and Freddie to go back to being on their own. They say reprivatizing would return money to taxpayers and reduce the deficit, but it's a very complicated process.
MARTÍNEZ: So is it fair to assume that these shakeups could be, like, the early stages toward privatizing Fannie and Freddie again?
WAMSLEY: Definitely. I mean, in his confirmation hearing, Pulte said that government control of Fannie and Freddie should, quote, "not be indefinite." Though he added that whatever is done must be done carefully to avoid pushing up mortgage rates. Reprivatizing them would likely mean a windfall for many big investors who bought shares in the two companies after the 2008 crisis. But for homeowners, it could mean higher rates.
MARTÍNEZ: Oh, boy. In what way? Because it's already really expensive to buy a house.
WAMSLEY: Yeah, well, many are concerned that futzing with the current setup could spook investors, and that would hike mortgage rates. If there were to be less government backing of Fannie and Freddie, then those bundles of mortgages would look more risky to those big institutional investors. And that'll push mortgage rates higher. Of course, back in 2008, when those companies were on their own, they supported risky lending practices, practices that resulted in the government bailing them out. So the risk is that Americans could again be on the hook for losses. So no easy answers here but a lot of potential impact on housing affordability.
MARTÍNEZ: All right, that's NPR's Laurel Wamsley. Thanks a lot.
WAMSLEY: You're welcome, A.
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