🚨 The end of a 30-year fixed-rate mortgage? What shock will Trump’s privatisation of GSE have on your house price?
The foundations of the U.S. housing market are faltering. The Trump administration announced plans to raise $30 billion through the privatization of Penney May and Freddie Mac, and the shares of the two companies soared 20%.
But the truth behind investors’ cheers is more complex and shocking.
🏠 Changes Shaking the USD 6.6 Trillion Market
The mortgage market covered by Penny May and Freddie Mac is half the size of the entire United States. Their privatization represents a fundamental review of the American-style housing finance model established after the 1930s New Deal.
Currently, 70% of U.S. mortgages depend directly or indirectly on government guarantees, and a change in this system puts the U.S.-specific mortgage structure of a 30-year fixed rate itself at risk.
💰 The cost of purchasing your house varies like this
Privatisation is expected to see mortgage rates rise by an average of 30 basis points, or 0.3%. Borrowers with lower credit scores and lower down payments could face an additional burden of up to 91 basis points, or 0.91%.
If you’ve targeted a $300,000 home, that means you may have to downgrade it to $250,000. It is expected to be a double whammy for first-time homebuyers and middle-class people.
⚠️ Risk in the $290 billion TBA market per day
The biggest risk is the To-Be-Annoticed (TBA) market, which is unfamiliar to the public. A faltering market could cripple the entire mortgage system. Democrats have already called for a “suspension of GSE share sale plans,” and Wells Fargo has warned that “the market cannot function without implicit guarantees.”
🌍 Global shockwaves are also expected
GSE-related assets held by foreign central banks amount to trillions of dollars. It is also expected to have a direct impact on the operation of foreign exchange reserves in Asian countries, including Korea.
Treasury Secretary Scott Bessent’s statement that “we are taking a cautious approach to avoid rising mortgage rates” reflects such concerns. As such, the privatization of the GSE is a potential risk factor that could have a huge impact on the housing and financial markets.
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