Fannie Mae and Freddie Mac have been under federal government control since 2008. After receiving a combined $191 billion bailout during the financial crisis, both companies were placed into conservatorship under the Federal Housing Finance Agency (FHFA), a temporary measure that has now lasted over 17 years. The federal government is actively moving to privatize them again, a shift that could happen as soon as late 2025 or 2026. For real estate investors, particularly those using DSCR rental loans and bridge financing, understanding what privatization means and how it could affect borrowing costs is worth paying attention to now.
What Are Fannie Mae and Freddie Mac?
Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are government-sponsored enterprises (GSEs) that sit at the center of the US mortgage market. They do not make loans directly to borrowers. Instead, they buy mortgages from lenders, bundle them into mortgage-backed securities (MBS), and sell those securities to investors.
This process does two things: it gives lenders a reliable buyer for their loans so they can keep making new ones, and it keeps mortgage rates lower than they would otherwise be because investors accept lower yields on securities that carry an implicit government guarantee.
Together, Fannie and Freddie backstop roughly half of all US mortgage originations. Without them functioning, mortgage credit would tighten significantly and rates would rise for most borrowers.
What Is Conservatorship and Why Has It Lasted So Long?
When the 2008 housing crisis hit, both GSEs were insolvent. The FHFA placed them into conservatorship in September 2008, giving the federal government control over their operations and finances. In exchange for stabilizing the companies, the Treasury received preferred stock and a commitment to receive most of the companies’ profits going forward.
The arrangement was never intended to be permanent. But successive administrations found no clear path to privatization that did not risk destabilizing the mortgage market. In the years since, both companies returned to profitability. By 2025, they were well-capitalized, generating billions in annual profits that flow largely to the US Treasury, and operating with sophisticated risk management infrastructure.
The case for releasing them from conservatorship has strengthened over time: both companies are financially healthy, the government has recouped far more than the original bailout through profit sweeps, and many policymakers believe the mortgage market should carry less government risk over the long term.
What Would Privatization Actually Mean?
Privatization would involve selling shares of Fannie Mae and Freddie Mac back to private investors through an IPO and reducing or eliminating the explicit government guarantee that currently supports their securities. Estimates suggest such an offering could raise more than $30 billion.
The key question is what happens to the government guarantee. Currently, investors who buy Fannie and Freddie MBS accept lower yields because they believe the government would backstop those securities in a crisis. If that guarantee is reduced or removed, investors will demand higher yields to compensate for the added risk.
How Privatization Could Affect Mortgage Rates
The chain reaction that most analysts expect if privatization reduces the government guarantee:
- MBS backed by Fannie and Freddie are viewed as riskier by investors
- Investors demand higher yields on those securities to compensate
- Higher MBS yields put upward pressure on benchmark Treasury yields
- Rising Treasury yields feed through to higher mortgage rates broadly
For conventional homebuyers, this could mean meaningfully higher borrowing costs. The magnitude is genuinely uncertain and would depend on how markets price the change, how the transition is structured, and whether any partial guarantee is preserved.
How This Affects DSCR Loans and Real Estate Investors
This is where many investors assume the story does not apply to them. DSCR loans are private lending products; Fannie and Freddie are not involved in originating or purchasing them. But the connection is more indirect and still meaningful.
Most DSCR loans are priced based on the 5-year or 10-year US Treasury yield plus a lender spread. When Treasury yields rise, DSCR rates typically rise with them. If privatization pushes up yields across the mortgage market, DSCR borrowers would likely feel the impact in the form of higher rates.
The potential range of impact is speculative but instructive: a modest privatization scenario might add 0.125% to 0.25% to DSCR rates. A more disruptive transition could add 0.50% or more.
The alternative scenario worth noting. If DSCR-backed loan pools demonstrate consistently lower default rates than conventional investor loans, institutional buyers in the secondary market could actually favor DSCR securities over agency MBS in a post-privatization environment. If demand for DSCR loan pools rises, prices rise, yields fall, and rates for DSCR borrowers could improve. This is a less commonly discussed scenario but not an implausible one.
What the FHFA’s Role Means for Investors
The FHFA serves as the regulator and conservator of both Fannie and Freddie, as well as the regulator of the Federal Home Loan Banks. Leadership and policy direction at the FHFA directly shapes how privatization proceeds, whether the transition is gradual or abrupt, whether any government guarantee is retained in modified form, and how the secondary mortgage market is structured going forward.
Investors who follow FHFA policy announcements and commentary from mortgage market analysts will have the clearest read on how privatization is actually progressing and what the market expects in terms of rate impact.
What Real Estate Investors Should Do Now
Privatization is a slow-moving policy change with significant uncertainty around timing and structure. The most useful investor response is not to make dramatic portfolio decisions but to stay informed and position thoughtfully.
If you are planning to buy or refinance, model both scenarios. Understand what your DSCR loan rate looks like today and what your deal economics look like if rates rise by 0.25% to 0.50%. Deals that only work at today’s rates are more vulnerable than deals that work at a range of rates.
Know which loans in your portfolio are fixed and which are variable. Fixed-rate DSCR loans insulate you from rate moves after closing. Variable-rate or short-term bridge loans expose you to rate changes at refinance. Review your portfolio with this in mind.
Consider locking in now on refinances or new acquisitions where the math works. If you have been waiting to refinance or are evaluating a new acquisition, today’s rate environment may be more favorable than a post-privatization environment. That is not a guarantee; it is a scenario worth factoring into your timing.
Stay close to market data. The Federal Reserve’s Senior Loan Officer Opinion Survey, Treasury yield movements, and FHFA announcements are the most useful signals for tracking where this is heading.
INVESTOR TAKEAWAYS
Privatization refers to the process of moving Fannie Mae and Freddie Mac out of government conservatorship and turning them back into fully private companies. This would shift them away from federal control and potentially reduce or remove the government’s role in backing their mortgage securities.
These two GSEs play a central role in U.S. housing finance. If privatized, their mortgage-backed securities may no longer carry an implicit government guarantee. This could increase perceived risk among investors, which may ripple into higher mortgage rates and tighter credit conditions.
Yes, indirectly. DSCR loans are often priced relative to U.S. Treasury yields. If privatization raises yields on agency-backed mortgage securities, it may put upward pressure on Treasury yields, leading to higher borrowing costs across the board, including for DSCR loans.
Supporters argue that privatization encourages market efficiency, reduces taxpayer risk, and brings private capital back into the housing finance system. It also opens investment opportunities through public ownership of the GSEs via IPOs or secondary markets.
If agency loans are perceived as riskier or more expensive post-privatization, DSCR loans—especially those with strong underwriting and low default rates—could become more attractive to secondary market investors. This shift in demand might help stabilize or even reduce DSCR loan rates over time.
