The Future of Fannie Mae and Freddie Mac and What Privatization Could Mean for Homebuyers with Nathan Hartseil – Ep 089

The housing market has undergone significant changes in recent years, leaving many homeowners and prospective buyers feeling uncertain about its future direction. Interest rates have risen from historic lows, making affordability a pressing issue, and discussions about the possible privatization of Fannie Mae and Freddie Mac are sparking new concerns about the future of housing and mortgages in America.​

In this episode, we welcome back Nathan Hartseil of Main Street Home Loans. Nate explains the complex role of Fannie Mae and Freddie Mac in the housing market, including how they provide liquidity and stability, why they have remained under government conservatorship since 2008, and what could happen if they were to transition to private control.​

From the potential impact on interest rates and borrowing standards to how privatization could shape opportunities for first-time buyers, investors, and empty nesters, Nate shares his thoughts and insights into how this shift could affect anyone who may need mortgage financing in the near future.​

Whether you’re considering buying your first home, refinancing, or making a change in retirement, this conversation sheds light on a pivotal topic that could redefine the housing landscape for years to come.

In this podcast interview, you’ll learn:

• Why Fannie Mae and Freddie Mac were placed under government conservatorship in 2008 and their role in stabilizing the housing market.
• How privatization could impact mortgage rates for both borrowers with healthy and unhealthy credit scores.
• The effect of higher interest rates on affordability, refinancing, and downsizing decisions.
• What the return and popularity of non-qualified mortgages means for today’s lending environment.
• The innovation and challenges that competition from private investors could bring to the mortgage industry.

Inspiring Quotes

• “If you are a very good borrower, you’re going to reap the benefits. You’re going to get a better interest rate.” – Nathan Hartseil

• “If they privatize Fannie Mae and Freddie Mac, rates will go up for some people, but everything will become risk-based—good borrowers will reap the benefits.  So everything will become risk based from the top down.” – Nathan Hartseil

Interview Resources

• Main Street Home Loans
• Main Street Home Loans on Facebook | Instagram
• Nathan A. Hartseil on LinkedIn | Facebook | Instagram | X/Twitter
• Fannie Mae
• Freddie Mac
• Ben Carson
• Bill Ackman
• Bill Pulte
• JP Morgan
• Morgan Stanley
• Goldman Sachs

[INTERVIEW]

Keith Ellis, Jr.: Welcome everybody to another edition of the Retirement Road Map Podcast. My name is Keith Ellis here with Nate Hartseil from Main Street Home Loans. We’re going to talk about the potential privatization of Fannie Mae and Freddie Mac. Nate, I know you’ve been getting a lot of questions on that. I’ve had a few actually, people that are really up to date with that portion of the market, how this could potentially impact them, how this could impact mortgage rates, so on and so forth. So, this is just something we wanted to have you in to help unpack. So welcome.

Nate Hartseil: Well, thank you very much and thanks for your time on this because you’re right, we have been getting pounded with questions about this, not only in the financial investment side, which I don’t take part in. I send things over, but definitely, on how is this going to affect the mortgage industry.

Keith Ellis, Jr.: Yeah. So, I mean, first thing you start to think about is the impact, the purpose of Fannie Mae and Freddie Mac. They’re there to help secure loans, so on and so forth, and provide some type of government backing, for lack of a better way of putting it.

Nate Hartseil: Yeah. And they actually provide liquidity into our system to keep it moving as well. So, they’re considered GSEs, government-sponsored entities, and they’ve been in receivership now since about 2008. And just for a reference, last year alone, they pumped in about $800 billion in liquidity into our housing market.

Keith Ellis, Jr.: Wow. And everything that you read, that’s a slow housing market.

Nate Hartseil: That is a slow housing market.

Keith Ellis, Jr.: You know what I mean? Because everywhere you look, everyone that I talk to, they’re saying how slow the housing market is right now. And I think a lot of that has to do with people. Remember, what, four or five years ago, interest rates were 2%, 2.5%, 3%, 3.5% on the high end back then, and now we’re seeing rates coming down a little bit, but probably more in the 5%, 5.75% to 6.5% range. People are still hesitant to pull the trigger and having those higher rates, gives you a higher mortgage payment, so on and so forth. So, I think a lot of people are waiting, for lack of a better way of putting it, the dust to settle rates to come down and then that becomes more affordable. So, kind of give us an idea of, if they were to privatize Fannie Mae, Freddie Mac, these two government entities, for lack of a better way of putting it, what will the impact be on maybe mortgage rates? Will we start to see them come down because maybe there’s investment behind it that the government’s able to work out to give a little bit more back to the people and basically, maybe like affordability?

Nate Hartseil: Sure. Yeah, this is a great, great point. And to your previous statement, I think, 5s are kind of that magic number now. Once interest rates are steadily in the 5s, I hope the market will open up a little bit.

Keith Ellis, Jr.: So, what was 2.5 or 3, 3s a new 5?

Nate Hartseil: Well, 3 to 5.

Keith Ellis, Jr.: 5’s a new 3.

Nate Hartseil: 3 to 5 people can swallow.

Keith Ellis, Jr.: Yeah, I agree.

Nate Hartseil: 3 to 8, they can’t. 8’s tough. It’s really tough. I’ll digress a little bit on your question. So, with Fannie Mae and Freddie Mac, and I want to say since post 2008, 2010 and since it’s been in conservatorship and I don’t like bringing politics into anything, but it has been politicized since that point.

Keith Ellis, Jr.: Okay.

Nate Hartseil: I mean, for instance, even as of recent, we have Dr. Ben Carson, who I absolutely love. However, he’s in charge of HUD. We are putting political figures in professional positions. Well, a hedge fund doesn’t put your garbage man in charge. Not that he’s a garbage man, but it’s just politicized and we’re appointing people in positions instead of the best person for the job. So, I think if it is privatized, that will change overnight. Why? Because it will become run like a business, like a true business, like a true hedge fund based off profitability. It will be risk based more so.

So, our previous administration under Biden, no matter what your feelings are let’s face it, it was run with, we had waivers of income, so we were catering to lower income borrowers. We had grants, we were taking on riskier loans. We were charging less. For instance, say FHA, okay, you can go under a 580 credit score. That means you pretty much never paid a bill. And you can have a 3.5% down payment and get a grant for that 3.5% down payment. So, let’s face it, if you were going to lend your money, that’s risky, right, to lend somebody money like that. But we ran that administration more like everybody should have a home. Everybody should own a home. And a lot of people support that. I mean, I support that too. I support that, though, for the right reasons and more risk-based reasons.

So, what we did with the risk is we penalized some people because if you were considered to be able to buy a second home or investment property, you were well off, so you were middle class or above or considered more well off. So, you could put 30% down payment, you could have an 800 credit score. But Fannie Mae and Freddie Mac at the government direction decided to put a 300 to 400 basis point hit on those interest rates. Why? Because it leveled out the other end of the spectrum, because your higher risk borrowers had to be offset with something. So, we kind of penalized the second home market. We penalized the investment property market.

So, with the current administration now, some of these programs may go away. We would become more risk based. So, instead of being a riskier borrower paying a lower interest rate, making it more affordable, lower mortgage insurance, your rates will go up. If you are a very good borrower, 40% down payment, 20% down payment, 800 credit score, you’re going to reap the benefits. You’re going to get a better interest rate. So, everything will become risk based from the top down. Like I said, some people may believe in that, some people may not, but we kind of have to roll with what administration and what their agenda is in office at the time. So, this is just some of my insights on that. But I think if they were prioritized, we would see lower rates on second homes, lower rates for great borrowers, lower rates on investment properties.

And we’ve already seen this in the market. So, we have private investors right now who we underwrite to Fannie Mae and Freddie Mac guidelines. It may be sold there at the end of the day, it may be not, but they are private equity and they’re risk-based. So, they’re cherry picking our best loans right now that we’re doing and they’re offering an interest rate better than the going market, and they’re profitable on it because they’re not taking on any risk. They can offer lower interest rates than what the current market is directing right now.

Keith Ellis, Jr.: Is that kind of why you say, hey, look, we do a loan with you as an example, and then it flips over to like a JP Morgan or something like that?

Nate Hartseil: Well, right now, there comes a point where holding and servicing loans is very, very profitable. That point is not right now. Because let’s face it, the last three years, the prediction is within the next 18 to 24 months, probably 80% of these loans will be off the books. So, there’s not a huge servicing value in these loans right now. So, getting them off the books and giving them out to bigger servicers right now is more profitable, but not that that won’t change.

Keith Ellis, Jr.: So, something you said a minute ago, you said basically under prior administration, again, don’t want to get political, but they were taking a little bit more risk in regards to lending money so people can become first-time home buyers. Is that kind of reminiscent, I hate to use this time, like a 2008 scenario or…

Nate Hartseil: Yes and no. So, I’ve been in the business. I was in the business 2005 to 2008 and then lost my job twice and I started writing subprime loans, all day loans, then more on to prime lending.

Keith Ellis, Jr.: I don’t want to scare anybody, because everyone remembers 2008, but it’s just something you think about, right?

Nate Hartseil: Those programs are coming back. They’re coming back right now more on the private sector. We call them non-QM loans, so non-qualified mortgages, but the stated income, the bank statement loans, the profit and loss statement loans, I mean, they’re back and they’re performing right now. So, where these loans a year, a year and a half ago, we’re at like 11%, 12%, 13% interest rate. They’re down in the 6s, 7s, right now, which is amazing. I mean, if they keep performing well, we may see a time to where these easier qualifying loans run parallel with Fannie Mae and Freddie Mac. However, it’s not 2008 because they’re not 500 credit score borrowers just out of bankruptcy. We do definitely have a higher standard base right now.

Keith Ellis, Jr.: Okay, good. So, we learned our lesson. Let’s hope. So, they privatize these two entities, right? What does that do to, like, in your thought or maybe your opinion to mortgage rates into affordability of housing?

Nate Hartseil: Sure, yeah, great question. So, it could go one of two ways. My assumption on this though would be a quicker market turnaround. We would also see more competition come into the market, especially from the private sector, which in return usually develops more programs, more innovative programs.

Keith Ellis, Jr.: Sure, yeah, absolutely.

Nate Hartseil: More competition. And let’s face it, competition with anything, just like going to the car dealer. Next door to another car dealer, you’re going to get a better deal.

Keith Ellis, Jr.: Typically better for the consumer.

Nate Hartseil: Exactly. But I do believe it’s going to be better for the right consumer, qualified borrowers. And that’s why it’s time to start preparing now. I think the days of everybody qualifying for a mortgage, I mean, I always say everybody’s qualified for a mortgage, but take the direction of a mortgage professional. You may be not qualified today, but we’ll get you on the right path to get there. So, I do think it’s going to mean higher rates for less qualified borrowers and lower rates for more qualified borrowers.

Keith Ellis, Jr.: Yeah, and a lot of times, when you look at these entities, they have some type of guarantee or government backing as we just talked about, like what happens then?

Nate Hartseil: So, that is a huge question right now and one of the big things on. So, the current administration agenda was we’re going to privatize Fannie Mae and Freddie Mae. That’s what we’re going. Did we know a timeline behind it? Not really, because there’s a lot of questions from Wall Street at the moment. Is the government going to stay in? Are they going to be there if we need another bailout? Are we going to get guarantees from the government? And that’s huge.

Some people took the leap of faith right away. As soon as Trump was elected into office, Bill Ackman’s hedge fund bought 11% in Fannie Mae and 11% in Freddie Mac. Weeks following the election, that was worth $1 billion. Months following the election, Fannie Mae was up 126%, Freddie Mac was up 107%. Yesterday, Bill Pulte came out and said, conservatorship is probably off the table or probably going here to stay. And parts of Fannie Mae and Freddie Mac would maybe be privatized. This had a 6% drop in Fannie Mae and an 8% drop in Freddie Mac overnight.

Keith Ellis, Jr.: Wow.

Nate Hartseil: So, this is how volatile our market is right now, not knowing what’s going to happen. Do we trust in the current administration that they’re going to follow through on privatizing these entities and Bill Ackman’s hopes? Or do we follow Bill Pulte saying it’s not the right time? Maybe. A little too volatile, a little too risky right now to do it? Maybe. Just like day-to-day with the Fed Reserve, the Treasury. Are we going to lower rates? We don’t know right now. It’s up in the air. If Powell leaves, they’re probably going to lower them the next day.

Keith Ellis, Jr.: Yeah. You see the pressures on a daily basis from the president trying to, but I believe in an independent Fed personally, and they have to act independently for the betterment of keeping inflation intact. And we’re starting to see, in my opinion, inflation come down, cost of living come down, which is a good thing, right? I mean, obviously, if the dollar goes farther, it’s better for everybody. So, what are your thoughts on the private? Is it, let’s do this two ways? If I’m a person that is coming to get my first home, is the privatization of these two entities positive, negative? And let’s take it a second step. Okay, I’ve had a home for three years. My rate was, I got in at the top at 8%. Now, I want to refinance. How does that impact me? Help me.

Nate Hartseil: Sure. Well, I think the proper prior planning will be part of it, really look in the mirror, reflect, am I a good borrower? Do I pay my bills? Am I credit worthy? Because this will have a big play on it. Now, I do think if they do privatize, the market will turn around quicker. Not that we’re not on the path to turn around, we’re just looking for speed, speed, speed. So, we either have to look at this as hype right now with the volatility in the market. Or are we going to follow through with it? And nobody really knows at the time. First time home buyer programs, I think they’re here to stay.

Keith Ellis, Jr.: Yeah.

Nate Hartseil: I think they are, but I think they’re here to stay for the right people on the right path as well. As far as interest rates, I’m still a firm believer, we’re a little slower than we wanted on this turnaround. I think we’re a little slower than the administration wants on this turnaround right now, but I’m still a firm believer in the next 12 to 18 months, maybe 24 months max, we’re going to see that relief. Is it going to be the three points? I want them to lower three points now. No. That would send our market into turmoil. You could imagine what it would happen to the stock market if we did that in one brash move.

So, I think it will be max of like half point, maybe increments until we get down to a level base. I’d love to see the low 5s. I’d love to see the high 4s again because I think that would really open the market. Now, that can also go two ways because we’re actually seeing a completely different market right now in Boston than we are in Chicago, than we are in Washington, Oregon, California, New York, parts of Florida. I mean, these markets right now are flat markets. If not, I don’t want to use the word declining, but we have an office in Virginia right outside of DC.

Now, 40% of all the offers accepted in the last month had some type of seller concession. Meaning the seller’s doing a price reduction, giving them closing cost credits, and their market usually runs pretty parallel to the Boston locale. I’m still seeing over-asking. I’m still seeing multiple offers. I’m a firm believer it’s because of the tech, biotech, medical colleges. We have something keeping the people here and keeping them here after their education. We have a strong job market. So, it’s affecting our market a little bit different than the rest of the US so it’s very hard to correlate our market versus a different market.

Keith Ellis, Jr.: Well, I agree with you. I hope rates come down because I think it just opens up the market that much more for new buyers or for potential people to maybe upgrade. Maybe they’ve had two children, three children, but they’re stuck in a smaller home because their rate’s 2.5%, 3%. Why would you want to give that up, right?

Nate Hartseil: Exactly.

Keith Ellis, Jr.: Go take a mortgage at 5.5%, 6%. You know what I mean? So, I think, the old mortgage rates have kind of handcuffed.

Nate Hartseil: Sure. We still have about 20 million homes in the US that need to turn over, between baby boomers, empty nesters. Empty nesters who just want to move back to the city. I see a lot right now in these big homes and the younger generation, either the affordability being priced out of the market, living at home right now. We have to turn these over and we know we need to. We don’t want to turn them over overnight with 20 million homes of inventory on the market because prices would plummet.

Keith Ellis, Jr.: Yes.

Nate Hartseil: But if we do it in the right factor with lowering interest rates, I think we can keep prices stable or level prices off, which would be definitely positive. If rates come down real quick too and we have more buyers than sellers on the market, then prices go up again. So, there’s a lot of factors that could come into play and most of it is speculation at this point. It just has to be done in the proper fashion, but we know we need some type of relief.

Keith Ellis, Jr.: Do you definitely think there’s people on the sideline ready to go, though?

Nate Hartseil: I know there’s a lot of people on the sideline right now.

Keith Ellis, Jr.: Just waiting for rates to come down.

Nate Hartseil: Exactly.

Keith Ellis, Jr.: So, the buyers will be there if the rates come.

Nate Hartseil: I think the buyers will be there.

Keith Ellis, Jr.: It’s just, will the sellers, I guess, is the question. You know what I mean?

Nate Hartseil: Well, and that’s the thing. Downsizing is huge right now because we do have a lot of boomers and empty nesters.

Keith Ellis, Jr.: Right, right.

Nate Hartseil: And they’re in these big homes and they know it’s just too much right now.

Keith Ellis, Jr.: I see it every day in my line of work.

Nate Hartseil: And there’s a ton of equity in these homes. I mean, a lot of them are sitting back because that’s their retirement.

Keith Ellis, Jr.: Right, right. And there’s, how do you get the money out of it? Obviously, sale. I’ve had a few clients since the beginning of the year, they live maybe on the North Shore now, they want to move down closer to Plymouth, maybe like Pine Hills, or even they had a family home on the Cape. They want to take the money from up there, redo the home on the Cape, and that’s going to become their new residence. So, you’re definitely seeing the shift.

Nate Hartseil: I’m seeing a shift now of, first time in the job market, people starting families, people getting married. I see a suburb rush right now. And I’ve seen that on my end. And what I’ve seen is, like I said, the boomers, the empty nesters kind of coming back to the city.

Keith Ellis, Jr.: Interesting.

Nate Hartseil: Downsizing in a condo in the city, getting rid of the big house, and that’s what we really need to happen. That’s what traditionally happened in this country.

Keith Ellis, Jr.: Right. So, to kind of circle back on the privatization of these two entities, again, like a timeline. Like, how’s this going to happen? What is the mechanism to do this? Kind of, I don’t know if you could talk.

Nate Hartseil: No, I wish I knew the specifics completely behind that. That’s above my pay grade.

Keith Ellis, Jr.: Okay.

Nate Hartseil: But…

Keith Ellis, Jr.: Opinions are good, though, or thoughts.

Nate Hartseil: But I can tell you, it happened quickly, let’s put it that way. It was put into conservative very quickly. So, the kind of bailout of Fannie Mae and Freddie Mac was fast, huge cash injection. Now, the years following, the conservatorship of Fannie Mae and Freddie Mac, they have been extremely profitable since. They have paid back the government, everything that was borrowed and then some.

Keith Ellis, Jr.: Wow.

Nate Hartseil: So, that is why I think the privatization right now would be huge. And that may be why also some of the government parts don’t want to let it go because it is so highly profitable. As far as privatizing it, I would hope it could be as quick as it was going into conservatorship, because let’s face it, anybody who knows anything about bankruptcy or court conservatorship, it’s meant to be temporary. That’s not meant to be a permanent solution to something. So, I think we have to either make it a permanent government entity or we need to privatize it. And the legalities behind privatizing it, especially with regulation and public-traded entities. Like I said, that’s a little out of my realm. I don’t know how hard or how easy that would be.

Keith Ellis, Jr.: I do like the idea of creating more competition, driving. Like I said, I think it really just simply helps the consumer, but on the backside, you’re right. It’s like the compliance issues, you want to make sure, like right now, consumers are kind of protected. You want to make sure that protection still lies. So, it’s kind of, you want to have your cake and eat it too.

Nate Hartseil: Yeah. I do think our market is starving for competition right now.

Keith Ellis, Jr.: I agree, I agree.

Nate Hartseil: And to give you an example on it, I spoke a little bit earlier on non-QM loans, means non-qualified mortgage. So, like I said, we started out two, three years ago, and they came into the market with higher rates and there were a bunch of names of investors I didn’t know in the market, but we were writing them. We were writing their products.

And now, today, I look at it and we probably have 50 something investors, 100 and something different, non-qualified mortgage products. And I look at our investor base now, JP Morgan, Morgan Stanley, Goldman Sachs. We’re seeing some big names come into this market and it’s driving those interest rates down. So, that is a private sector product. So, we would hope that that would fall true to Fannie Mae and Freddie Mac becoming privatized as well.

Keith Ellis, Jr.: Yeah, I mean, this is just starting to be a little bit more of a topic of conversation, just something we’ve been keeping our eyes on here at SHP, but we wanted to bring in Nate, who really lives, breathes easy. This whole section of the market, this whole sector, and just get your opinion, your thoughts, so on and so forth. Any final thoughts? Where do we see this going over the next 12, 24, or 36 months?

Nate Hartseil: Sure. And I can’t stress this enough. I do believe it will happen. And if it doesn’t happen under this administration, it depends on the next administration and their agenda. But if it does happen, just like any hedge fund, just like any business, successful business, the right people will be put at the top to run these entities like a business. So, I see all over the internet. Don’t let them privatize Fannie Mae and Freddie Mac, rates will go up. Rates will go up for some people. Everything will be risk-based. Everything started out as risk-based. We got away from it a little bit. But once again, I don’t want to cross political lines, but you either have a risk-based where if you’re a good borrower, you pay less rates. If you’re a bad borrower, I don’t want to use the word bad borrower because there’s really no bad borrowers out there, but if you’re a challenged borrower…

Keith Ellis, Jr.: That’s what I always thought it was.

Nate Hartseil: You’re going to pay the price for it. But right now, we have this pendulum where we’re offsetting risks by penalizing better borrowers, and that’s got to go away, especially with the second home market. Second homes were traditionally the same interest rates as primary residents.

Keith Ellis, Jr.: Interesting, okay.

Nate Hartseil: Put 10% down and you had the same interest rate or pretty close interest rate as a primary residence. And any more, like I said, you’re paying 300 to 400 basis point penalty. Why? Because you’re not going to pay your mortgage. No, you’re a good borrower. You’re going to pay your mortgage.

Keith Ellis, Jr.: It’s really to offset, like you said, the risks.

Nate Hartseil: I mean, we do it in every other business in the world.

Keith Ellis, Jr.: Yeah, I mean, obviously, you made a pretty good case for why you believe in your position, what you do, the privatization makes sense, and I just think anything to help fuel growth in that sector or ideas or innovation, I’m all for it.

Nate Hartseil: Absolutely. And I don’t want to portray myself as like, I’m against the first-time home buyer or some of these programs out there, because I love some of these programs. And I think we should help and encourage home ownership, our young buyers, but I think they need to be put on the right track, not I can go get a home. I have to do something to earn this home.

Keith Ellis, Jr.: You might be doing them a disservice.

Nate Hartseil: You could be.

Keith Ellis, Jr.: You know what I mean? Like, you get them in over their heads.

Nate Hartseil: I mean, I do believe these programs definitely need to be out there because I’m a huge fan of the student loan forgiveness if you do a public service position. I know we have them in Massachusetts for 10 years and they’re forgiven. That’s great. Why? Because you’re making less income, say as an attorney, but you have these student loans and you’re working for the court system and you’re actually earning the forgiveness of these student loans through public service.

Keith Ellis, Jr.: Yeah. Well, this has certainly been a pretty interesting topic, and as this evolved, we would love to have you come back and maybe speak on a little bit more once maybe there’s a clear path as to which way this is going to go. But just want to thank you for your time and appreciate you coming in.

Nate Hartseil: Absolutely. Thank you for having me.

Keith Ellis, Jr.: Absolutely.

[END]