Pimco has urged the Trump administration to stop discussing privatizing Fannie Mae and Freddie Mac, arguing that such rhetoric alone could reduce mortgage rates by 10 basis points. The government-sponsored enterprises (GSEs) currently guarantee most US mortgages, but their value has plummeted amid political uncertainty over their future. Pimco contends that halting privatization chatter would lower borrowing costs, aiding Trump's affordability agenda ahead of midterm elections. The 10-basis-point drop represents a significant market signal, as mortgage rates remain elevated near two-decade highs despite recent Fed rate cuts.

Pimco's recommendations include expanding the GSEs' $200bn MBS purchase program and modifying investment property rules. The firm also suggests the Federal Reserve halt its MBS balance sheet run-off to further depress rates. Modifying GSE investment rules could ease institutional ownership, while ending homebuilder buydowns and preserving the GSEs' guarantee fee (g-fee) would maintain market stability. These measures aim to make housing more affordable without major fiscal outlays.

However, the most striking proposal involves the government explicitly guaranteeing all MBS backed by Fannie and Freddie. While this would create a $10tn liability, it reflects the implicit safety net the US has historically provided. Explicit guarantees would likely push rates down further, but political resistance to GSE reform remains high. Pimco's intervention highlights the tension between fiscal policy and market expectations in the housing sector.