Can Fannie And Freddie Go Public Without Destabilizing the Market?

• Fun and Fannie free: Talks continue about taking Fannie Mae and Freddie Mac public—but could it worsen the sluggish lending environment?

• Home sick: Homebuilders around the country are bracing for a slowdown as consumer confidence falters.

• Seeing red: China’s struggling real estate sector could make it harder to negotiate tariffs during trade talks with the United States.

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Federal Policy

Can Fannie And Freddie Go Public Without Destabilizing the Market?

Seventeen years after 2008’s emergency conservatorship—when Fannie Mae and Freddie Mac were seized by the federal government to halt a collapsing mortgage system—the Trump administration has thrust their future back into the spotlight. President Trump is now “seriously considering” taking the GSEs public again, proposing a massive IPO or spin-off to monetize government-held equity, while retaining implicit federal guarantees. The central thesis: moving Fannie and Freddie out of conservatorship and into private hands could unlock hundreds of billions in capital for taxpayers and fiscal cleanup—but it risks destabilizing the mortgage market, spiking interest rates, and undermining affordable housing, unless handled with surgical precision.

This backdrop sets a high-stakes scene: the Treasury still holds first-value senior stock worth some $340 billion, and the GSEs need another $180–$200 billion in capital to meet regulatory minimums. Industry leaders—like Mortgage Bankers Association CEO Bob Broeksmit—warn that without an explicit government guarantee and a carefully structured plan, pulling the plug could roil mortgage-backed-securities markets, erode investor confidence, and hike borrowing costs for both homeowners and multifamily developers.

On one hand, supporters tout privatization as a once‑in‑a‑generation opportunity: revenue generation for the Treasury, market efficiencies, and a return to pre‑2008 operating models. On the other hand, critics caution that early removal of conservatorship safeguards—or worse, a hasty IPO—could privatize profits while socializing losses, threatening mid-market housing, inflating rents, and imperiling the iconic 30‑year mortgage. With political polarization and technical hurdles galore, this bold policy pivot might take years—or collapse under its own complexity if affordability isn’t front and center.

Overheard

Homebuilders Brace for Slowdown as Consumer Confidence Falters

Homebuilder sentiment fell in June, dropping two points to 32 on the NAHB/Wells Fargo Housing Market Index, its third-lowest reading since 2012. Anything below 50 signals negative conditions. The downturn reflects worsening consumer outlooks amid high mortgage rates and renewed economic uncertainty, despite easing tariff pressures from the Trump administration.

All three index components declined: current sales conditions fell to 35, sales expectations dropped to 40, and buyer traffic sank to 21, the weakest since late 2023. With affordability tightening, 37% of builders reported cutting home prices in June, up from 29% in April, resulting in an average discount of 5%. Buyers are increasingly moving to the sidelines, and builders are responding with price cuts and sales incentives to keep pipelines moving.

NAHB Chief Economist Robert Dietz warned of softening price growth and predicted a decline in single-family housing starts in 2025. The outlook aligns with recent earnings from Lennar, which reported a nearly 9% drop in average home prices and weak guidance on new orders. Sentiment was lowest in the South and West, regions responsible for the bulk of new construction, signaling that affordability concerns may soon reshape housing markets nationwide.

China’s Real Estate Troubles Leave It Vulnerable in a Trade War

China is engaged in a standoff with the U.S. when it comes to tariffs. After a negotiation earlier this month, the U.S. has agreed to a 10% baseline tariff on all imports as well as a 20% "fentanyl-related" tariff and a pre-existing 5% tariff for "unfair trade practices." There are also a number of product specific tariffs on things like electric vehicles, semiconductors, and steel and aluminum products. China has also agreed to reduce its tariffs on U.S. goods to 10%. These tariffs are temporary and will continue to be adjusted pending the outcome of ongoing trade discussions so both countries will have to see how well they are able to deal with the inflated import prices.

China's ability to weather the economic storm will be the difference when it comes to future negotiations. One of the factors that could hurt China's economic standing is its ongoing real estate slump. Chinese real estate has been long a downward trend for years, forcing a number of high-profile bankruptcies of large real estate firms. New data shows that Chinese home prices continue to fall. In May, sales fell 6.1%, the most in seven months. Real estate investment continued its downward trend, contracting 12%.

There have been some signs of a recovery in Chinese property values, particularly in large, affluent cities like Hong Kong. But if the comeback doesn't come, it will hurt China's economy. Chinese citizens have much of their savings in real estate so a drop in property values can negatively impact consumer sentiment. The Chinese government has already shown its willingness to help prop up the real estate sector but if real losses are too large it there might not be enough capital to prop the sector up.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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