Unease Over Fannie, Freddie Changes Nudges Mortgage Rates

Experts worry that changing Fannie and Freddie’s government-owned status could harm mortgage rates, but concern over the unknown may be affecting them already.

NEW YORK – Prices for mortgage-backed securities are reflecting investor anxiety about the Trump administration’s push to overhaul housing finance, with bond data showing that securities issued by Fannie Mae and Freddie Mac are trading at a growing discount compared with securities sold by Ginnie Mae, resulting in higher borrowing costs for plain vanilla mortgages.

Investor demand is strong for Fannie and Freddie securities because the mortgage giants currently are backstopped by the U.S. government, but the gap between Fannie and Ginnie securities has widened as administration officials work on a proposal to release Fannie and Freddie from government control. Investors are concerned that any overhaul could reduce or eliminate the federal backstop.

“This is a rare public policy issue where we can actually observe in the market the very real impact of what our members are worried about,” says Structured Finance Association CEO Michael Bright. “Ending conservatorship without legislation means fewer investors for GSE mortgages – and that means higher interest rates for borrowers.”

Source: Wall Street Journal (06/25/19) Ackerman, Andrew; Eisen, Ben

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