Freedom for Fannie, Freddie & FHA!?

Hello everyone, and welcome to a brand-new year! I hope you all had a wonderful holiday season filled with fun and relaxation. Now that 2025 is officially underway, I'm here with the latest updates on everything happening in the mortgage and real estate world.

Let's dive in!

Read time: ~4 minutes

Rates ended FLAT compared to last week, and volatility was HIGH. Rates are in the high 6% low 7% range for most loan types without paying discount points. Paying discount points can get you in the mid 6% range.

Freedom Ahead for Fannie Mae and Freddie Mac?

Britney Spears, Fannie Mae, and Freddie Mac—yes, they actually share something in common.

Back in 2008, all three landed in major “conservatorship” scenarios. Thirteen years on, Britney’s famously won her freedom, but who would have guessed Fannie and Freddie would still be waiting? Now it seems their independence from government oversight may finally be on the horizon.

News broke on Friday about a plan to privatize Fannie and Freddie, sparking a 30%+ rally in their stocks (+100% over the last five days). Previous attempts to spin them off during Trump’s first term were sidelined by the pandemic, but privatization appears to be back on the agenda.

Keep in mind, Fannie Mae and Freddie Mac don’t directly issue mortgages. Instead, they buy loans from lenders, package them into mortgage-backed securities, and guarantee them against default, ensuring lenders have funds for new loans. The government’s involvement has kept the 30-year fixed mortgage a mainstay in the U.S.—a rarity in many other countries.

So what happens if they’re finally set free? It all depends on how the transition is structured and how much government support remains. Here are a few scenarios:

• Rates Nudge Up a Bit: If government guarantees shrink but don’t disappear, banks and investors will face slightly higher risk, nudging mortgage rates upward.

• Significant Rate Jump: If Fannie and Freddie become fully private with no federal guarantees, expect rates to climb more noticeably—particularly for higher-risk borrowers.

• Modest Change: A well-crafted public-private system that instills investor confidence might keep any rate impact small. This would be the smoothest outcome.

Could FHA Mortgage Insurance Finally Have an End Date? 🙏

One of the biggest gripes about FHA loans is the never-ending mortgage insurance. Since it doesn’t drop off for the life of the loan, many borrowers look elsewhere if they qualify for a different type of financing. But the “Mortgage Insurance Freedom Act” might fix that problem!

Reps. Gregory W. Meeks (D-N.Y.) and Pete Sessions (R-Texas) have introduced a bill in the House that would let FHA borrowers ditch PMI once their loan-to-value ratio hits 78%, mirroring conventional loan rules. Right now, FHA borrowers are stuck paying PMI indefinitely—even if their loan is way below 80% LTV.

Personally, I’ve always found it odd that a borrower with tons of equity (say, 50% LTV) would still be paying insurance designed to cover default risk. That’s practically zero risk for the lender and FHA!

If the bill passes, it would be a BIG DEAL—especially with mortgage rates, home prices, property taxes, and insurance costs all going up. First-time buyers, who make up the majority of FHA users, would benefit the most. Here’s hoping this bill gains enough traction to become law!

Big Week on the Horizon!

This Friday’s December Jobs Report is poised to make waves, especially given how stubbornly high mortgage rates have been amid a streak of strong economic figures. The question now is whether the labor market is still powering ahead or starting to tap the brakes.

Keep in mind, the Fed wants to see a slackening job market before it moves to lower rates in the near term. If the numbers remain solid, the market will likely price in higher rates hanging around for a while yet.

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