🏦 Fannie, Freddie & HUD – What Happens If They’re Privatized and How to Prepare

[AJ Wong]

We've been anticipating that government-sponsored entities (GSEs) like Fannie Mae, Freddie Mac, and HUD programs could face privatization or otherwise - ushering in a new era of residential mortgage financing with profound effects on the housing market.

We have personally been so convinced - that we are literally closing on a new primary residence this month - with get this: $2950 TOTAL out of pocket expenses. HOW? It took a little creativity - but even after 20+ years as a mortgage broker, even I was surprised at just how friendly mortgage underwriting guidelines have become. With all of the discussion of barriers to home ownership - there is no country on Earth where financing a home is ‘easier,’ (for qualified buyers)  3% down programs (plus additional grant or homeowner assistance!) exist. 

It is well known that FHA loans default at many multiples higher than conventional loans with tighter DTI and larger down payment requirements - what is not often discussed (nor will be here) is how this loose monetary policy artificially inflates housing prices. In short - if buyers were required to have 20%+ down and 35-40% DTI's (recently raised to as high as 55% - not including real life expenses) - like when the program began, it is unlikely that valuations would have climbed as rapidly.*

With that said - here is a snap shot of just how creative and leveraged US mortgages can be (and what is likely going away) from my most recent personal transaction. (Keep in mind these results will be a bit skewed as I am a licensed Real Estate Broker and a 'first time' homebuyer as my previous US primary was sold in early 2022).

$380K Purchase Price (Appraised at $405K) 

3% Down ($11,400) with $2400 Deposit

2.5% seller concession ($9500) + 2.5% RE Commission ($9500 self-representation)

Inspections - Well, Septic, Property, Appraisal ($2100 - $600 Appraisal Credit)

Sub 6.99% 30 year rate

$450 credit at closing

TOTAL Out of Pocket: $2950

Mortgage Payment: Sub $2850

There are some caveats - I am effectively financing the closing costs and down payment however - lenders even allow seller concessions of up to 6-7% on primary residences (but not above and beyond closing costs) - concessions cannot be applied towards down payments.

The RE commission is earned income - and essentially ‘applied’ to the down payment at closing.

With that said - even without the RE commission, it is still a borderline ridiculous and unfathomable loan (which without Government Endorsement) not one that I would make - but that that I am ecstatic to qualify for! Auto note rates are higher...

My point in all of this is: 

1. Anyone that invests in a personal RE license should see a positive ROI

2. If GSE’s are privatized - these type of underwriting standards, and likely the rates supported by the guarantees, are going away…or changing considerably. 

Here’s what that could mean for borrowers—especially first-time homebuyers:

When these programs began (FHA in 1934, Fannie in 1938, Freddie in 1970), qualification was far stricter:

• Large down payments—often 20% to 50%
• Short loan terms—5 to 10 years, often with balloon payments
• Limited access—mostly to well-established, higher-income borrowers

Over the decades, GSEs transformed the market with:

• 3–5% down payment options
• 30-year fixed-rate mortgages
• Higher allowable debt-to-income ratios (up to ~55%)
• Lower credit score minimums and minimal reserve requirements

Potential Effects of Privatization

• Tighter Qualification Standards – Higher credit score minimums, lower max DTIs, and larger reserves could push many first-time buyers out of the market.
• Bigger Down Payments – Low-down-payment programs may vanish, forcing buyers toward 10–20% down.
• Higher Interest Rate Volatility – Without federal guarantees, investor risk premiums could push rates up and make them more volatile.
• Reduced Access in Marginal Cases – Self-employed borrowers, those with moderate credit, and non-traditional income profiles may have fewer options.

Privatization could roll back decades of progress in mortgage accessibility—bringing lending terms closer to what existed when the programs were enacted nearly a century ago. 

What are your thoughts? Would you purchase a primary property with little or no money down - or in retrospect any investment opportunities that would have made sense to do so?