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. Privatization of Fannie Mae and Freddie Mac: Desirability and Feasibility is available from HUD USER for $5.
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