If this subject line looks like alphabet soup to you, allow us to translate. What do all these acronyms mean, and what do they have to do with real estate? 

First, there’s FNMA and FHLMC. These stand for the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, shortened to Fannie Mae and Freddie Mac, respectively. As you may know, Fannie Mae and Freddie Mac are the gateway to underwriting guidelines and liquidity in the mortgage market, to the tune of almost 60% of the entire market. During the financial meltdown of 2008, the federal government had to step in and take control of these two entities.

Even before the conservatorship, there has always been an implicit guarantee that the government will back the bonds they issue, thus backing the mortgage market. There has been much talk for more than 15 years of how this responsibility can (or should) come out from under the government and into the private sector. Recently, the idea has been floated that there should be an Initial Public Offering (IPO) combining these two entities into one, taking them out of government control, and raising money from the offering to be used by the federal government. Without putting our thumb on the scale, here is what is being said about the pros and cons of this move:

Pros:

• It could potentially raise billions of dollars for the federal government and unload the underlying risk of being invested in the housing market.
• Private governance may spur new risk-based pricing — product innovation that cannot be done under conservatorship.
• It would shield taxpayers from future bailouts if the market were to stumble again, like in 2008.
• By operating more like a business, it could potentially remove policy-making shifts based on a changing administration.

Cons:

• Mortgage rates could actually rise, taking away the government backing, investors may want to get a higher return on investing in this debt.
• Removing policy-driven motives and replacing them with profit motives, products or programs that had been used to help encourage homeowners may be modified or removed if the risk or return is not high enough.
• The sheer size and complexity of this move is immense in a $12 trillion mortgage market. The unknowns alone could cause more fear and uncertainty, which is not worth the risk.

There is currently no official IPO offering out there, but it’s worth understanding that there has been talk in the past of going this route, and that talk appears to have grown louder over the recent weeks. While there is no definite action to take with this information, it may be something worth discussing with clients who are thinking about making a move in the not-so-distant future.

Uncertainty in what products and services may be available and at what price may drive decision-making that leads them to want to buy or sell sooner rather than later. If you find this topic coming up or if you start to interject this into any of your buyer or seller conversations, lean on your Key Mortgage loan officer to help further the conversation and guide your clients into making the best decision for them, and making you the irreplaceable guide to anything real estate.