Shares of Fannie Mae and Freddie Mac surged this week after recent statements from officials in the Trump administration and changes in leadership at the companies brought attention to the possibility of their release from government control.

However, housing experts are cautious about the potential privatization due to concerns about the impact on mortgage rates. The shift from government control is likely to lead to an increase in mortgage rates, according to Mark Zandi, the chief economist at Moody’s Analytics.

The current proposal to make significant alterations to the US housing system comes at a time when affordability is a major concern, and home sales have been declining for years. Although Fannie Mae and Freddie Mac do not directly provide mortgages, they are crucial in the lending process by purchasing mortgages from lenders and bundling them into bonds, which in turn facilitates more lending.

Investor confidence in mortgage bonds, which make up a market of over $10 trillion, is supported by the backing of the government and the high credit ratings shared by Fannie and Freddie. Privatization poses challenges in maintaining this backing, and any perception of increased risk could raise borrowing costs for the companies and result in higher mortgage rates for borrowers.

Treasury Secretary Scott Bessent emphasized that decisions regarding the release of the companies will be influenced by mortgage rates, which have risen to around 6.7%, comparable to levels before Fannie and Freddie were put under government control in 2008.

Fannie Mae and Freddie Mac, as government-sponsored enterprises (GSEs), faced a crisis in 2008 when the housing market collapsed, prompting the government to intervene to prevent a financial meltdown. The incident highlighted the importance of the implicit guarantee that the government would support these institutions in times of crisis, even though they were technically private entities.