A major piece of news in the housing sector of late has been a plan proposed by President Trump to privatize the major government-sponsored entities (GSEs) in the marketplace—Fannie Mae and Freddie Mac. These entities, which were brought under government conservatorship in 2008 with a $191.5 billion bailout as a response to the housing crisis, have gone from being sources of concern in the market a decade ago to being quite profitable. But what might the effect on privatization be on the major modern form of home financing in the American landscape: the 30-year mortgage?
One thing to consider is how the 30-year mortgage’s history is entwined with Fannie and Freddie. Fannie was the first of these two organizations created, in 1938, to contend with the Great Depression—with the goal of buying mortgages from banks and creating a lengthier term of repayment than banks had been willing to put forth. This, essentially, was when the 30-year mortgage as we know it came to be. With this new influx of capital for banks and the new system of financing it created, the modern era of homeownership was born. In 1968, Fannie’s status was changed, making it a privately-held GSE, and it was listed on the New York Stock Exchange, allowing mortgage debt to be removed from the balance sheet carried by the federal government. (This was in large part because of concerns over the bill for the Vietnam War.) Freddie Mac’s history followed a similar arc, with the goal of increasing competition in the mortgage industry. Today, following their re-organization under the federal government in 2008, these two GSEs function in a similar way as they did in 1938—with the goal of providing mortgage liquidity. But they have now become two of the most profitable organizations in the world.
The question is not whether they should be re-privatized. That appears to be in the offing at any rate, as their conservatorship was always intended to be temporary; all that remains is for the various branches of government to agree on the terms under which it should be accomplished. The first step has already been taken—the GSEs are now set to retain $45 billion in capital (rather than the money being swept back into the federal government’s coffers).
But what will this mean for the 30-year mortgage? The 30-year fixed-rate mortgage in particular? It’s hard to say. Market forces don’t exactly support this sort of stability on their own (30-year adjustable-rate mortgages are more appealing to banks, as their income from these instruments is directly linked to the present health of the market—but, as was the case prior to Fannie’s creation, shorter-term mortgages are a more natural fit to banking market interests). What will be necessary in the course of privatization will be some sort of requirement that the GSEs continue to support the existence of such 30-year fixed-rate mortgages, in order to maintain market liquidity. Without any such provisions, the 30-year fixed-rate mortgage may well become a historical blip.
Whatever sort of mortgage you manage to secure, if you’re looking to contend with the real estate market in Tucson or anywhere else in the state of Arizona, an experienced attorney with strong scruples like the real estate attorneys at Provident Law can be a huge help. Our attorneys represent parties on either side of real estate and financing transactions, including buyers, sellers, landlords, tenants, lenders, borrowers, trustees, guarantors, shareholders, partners, and others. We structure, negotiate and document a variety of real estate and financing transactions, such as leases, purchase and sale agreements, loans and development agreements for a variety of commercial and residential projects. Contact us for more details.
Christopher J. Charles is the founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.
Christopher is a licensed Real Estate Instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at Chris@ProvidentLawyers.com or at 480-388-3343.