Harris says Trump’s ‘Project 2025 agenda’ would raise mortgage costs by $1,200. What’s that about?

Vice President Kamala Harris, the Democratic presidential nominee, recently tied a Project 2025 plan to former President Donald Trump, arguing they both support policies that will raise mortgage costs for U.S. homebuyers.

"If (Trump’s) Project 2025 agenda is put into effect, it will add around $1,200 a year to the typical American mortgage," Harris said at an Aug. 16 Raleigh, North Carolina, event at which she laid out her economic agenda.

In her speech, Harris did not say how she arrived at that figure. Her campaign later told PolitiFact it was based on a 2015 study about the potential impact of privatizing Fannie Mae and Freddie Mac, something Project 2025 called for.

Fannie Mae and Freddie Mac are two mortgage giants originally created by Congress that guarantee most of the mortgages made in the U.S. They do so by buying mortgages from lenders and holding them or selling them as mortgage-backed securities. The two government-sponsored enterprises entered a conservatorship managed by the Federal Housing Finance Agency during the 2008 financial crisis and some people have called for them to be returned to private ownership.

Harris’ claim failed to recognize that the 2015 study by economists at Moody’s Analytics and the Urban Institute that Harris relied on was a projection and offered a range of potential mortgage rate increases.

The study’s co-author, Mark Zandi, told PolitiFact that, by his analysis, mortgage rates today would rise in a manner consistent with his 2015 study if Fannie and Freddie were privatized. 

But the predictive nature of the study means this outcome is not a certainty, nor is the exact figure projection. Harris’ campaign chose the middle of the range and calculated the mortgage cost increase based on the 2023 average mortgage balance and interest rates.

Harris referred to "Trump’s Project 2025." The sweeping policy agenda for the next Republican administration, led by the Heritage Foundation, was created with contributions from dozens of conservative groups and calls for changes including executive branch overhauls, tax cuts and disbanding the Commerce and Education departments. Although Project 2025’s contributors included a number of former Trump administration officials, Trump campaign managers Susie Wiles and Chris LaCivita denounced the document July 30, and Trump has called some of its policy proposals "ridiculous."

And although the Trump administration unsuccessfully called for privatizing Fannie and Freddie, before his term ended, Trump’s current position on the matter is unclear. Campaign senior adviser Danielle Alvarez did not answer our question about it, but said no outside groups speak for Trump. Neither Trump’s Agenda 47 nor the Republican National Committee’s platform say anything about privatizing Fannie and Freddie.

In a chapter about the Treasury Department, Project 2025 says that the department "should work to end the conservatorships and move toward privatization" of Fannie Mae and Freddie Mac. It did not detail how that should happen.

The Trump administration moved to begin privatizing Fannie Mae and Freddie Mac in September 2019, but abandoned those efforts in late 2020, The Wall Street Journal reported. President Joe Biden’s administration in June 2021 ousted Mark Calabria, a Trump appointee who had pushed to end the federal conservatorship, as the head of the Federal Housing Finance Agency.

The 2015 paper that the Harris campaign pointed us to as evidence for Harris’ claim was written by Zandi, Moody’s Analytics chief economist, and Jim Parrott, a nonresident fellow at the the Washington policy research group Urban Institute. Parrott was also a former senior adviser at the National Economic Council in former President Barack Obama’s administration.

The paper, "Privatizing Fannie and Freddie: Be Careful What You Ask For," examined the cost of ending the conservatorship of the companies. The process is called "recapitalization and release" — meaning restructuring the companies’ debt and releasing them into private hands again.

The authors wrote that under a recapitalization and release proposal, mortgage rates would be  43 to 97 basis points higher than they were when the paper was written. Basis points are a unit of measurement used in finance, and 1 basis point is equal to one-hundredth of a percentage point — so 100 basis points is equal to 1%.

Releasing Fannie and Freddie into the private market again would require the companies to increase their capitalization, leading to higher mortgage rates for consumers to cover those costs, the paper said.

In its calculation, the Harris campaign said it split the difference and factored in a 70 basis point increase in mortgage rates. They used the average mortgage balance in 2023 — $244,498, according to Experian — and the effective interest rate on mortgage debt (3.8%) at the end of 2023. Mortgage payments at a 3.8% rate would be $1,139 per month. If that rate rose to 4.5%, those payments would increase to $1,239 a month. That $100 extra per month would mean consumers would pay $1,200 more annually in mortgage payments.

Zandi, the Moody’s economist who co-authored the 2015 study, said privatizing Fannie and Freddie today "would increase mortgage rates consistent with what we determined in our 2015 paper."

But the Heritage Foundation, in a statement to PolitiFact, countered that Harris’ analysis is flawed because it ignores that government subsidies and guarantees provided by Fannie and Freddie allow borrowers to take on bigger loans, which in turn have caused a dramatic rise in home prices.

The Foundation pointed to national data showing that monthly mortgage payments on a median-priced home jumped to $2,309 in May compared with $1,092 in 2021, and that mortgage interest rates nearly tripled in that time. That’s more than a $1,200 per month increase, the Heritage Foundation said, adding that Fannie and Freddie’s privatization would remove inflationary demand and restore affordability to the market.

Experts said that although privatization would likely affect mortgages, it’s difficult to parse out with certainty how profound the changes would be.

Benjamin Keys, a University of Pennsylvania Wharton Business School real estate and finance professor, said privatizing Fannie and Freddie would increase mortgage rates, but it could also lead to larger problems.

"The bigger concern would be the cyclicality of mortgage availability," he said. "One of the main benefits of the Fannie and Freddie system is providing credit in good times and bad, keeping the faucet on for mortgage credit regardless of private willingness to bear risk. Taking that away could lead to large cycles in mortgage rates and mortgage availability."

Although Harris was definitive in her statement, the effect that ending the conservatorship of Fannie and Freddie would have depends on many factors, such as the financial terms and the business model put in place.

A move to privatize Fannie and Freddie by any administration would not be a quick process. Donald Layton, a former CEO of Freddie Mac from 2012 to 2019, wrote for the NYU Furman Center in 2023 that the process would likely take at least three to five years.

It would take time to reach a level of capital "deemed sufficient for conservatorship exit" and for needed regulations to be put into place, he said. And the conservatorship’s end would not immediately end government control; the Treasury Department would control the majority of shares and it would take years to sell, he said.

Any plan to end the conservatorships would likely require administrative and congressional reforms, such as the 2019 plan former Treasury Secretary Steve Mnuchin prepared for Trump that was never instituted.

A 2020 Congressional Budget Office report analyzed two options for recapitalizing Fannie and Freddie through administrative actions.

It found that structures that emphasized more private capital and a lower federal guarantee for mortgages, "would generally lead to slightly higher interest rates and slightly lower home prices." But the impact could be greater during periods of financial stress, the report said.