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Welcome to the Mobile Home Park Mastery Podcast where you will learn how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate mobile home parks! Your host is Frank Rolfe, the 5th largest mobile home park owner in the United State with his partner Dave Reynolds. Together, they also own and operate Mobile Home University, the leading educational website for both new and experienced mobile home park investors!
If you're a mobile home park owner, you must be really happy so far with the Trump administration. They passed a big, beautiful bill which preserved our low tax rates. They've been doing all kinds of things with tariffs to push manufacturing and other industries back into the US, which is going to bring in a lot of jobs and a lot of infrastructure back to the Southeast and the Rust Belt and the Midwest where a lot of mobile home parks are located at. And of course, Trump has got a singular focus on trying to bring down interest rates and trying to manhandle that through the Fed with Jerome Powell. But the latest thing he's working on should also put a smile on your face if you're a mobile home park owner, and that's regarding Fannie Mae and Freddie Mac. This is Frank Rolfe, The Mobile Home Park Mastery Podcast. We're going to explore what's going on with this concept of doing an IPO, an initial public offering on Fannie Mae and Freddie Mac. Now, some people may think that Fannie Freddie has always been a part of the government, but that's not true.
Up until 2008, it was independent of the government, had obviously a strong relationship with it. But during the Great Recession, Obama was able to pull some levers and the US Government to keep Fannie Freddie from potentially failing. They ended up with effectively ownership of Fannie Freddie. And Fannie Freddie, as we all know, they guarantee over 70% of all US mortgage debt. So that is their big role in our society is we would not be able to have single family home mortgages in their current format in the absence of Fannie and Freddie, because banks are able to offload those mortgages to Fannie Freddie, and that keeps the money flowing. It keeps the mortgages happening. So Fannie Freddie have a very important role in American society, and we all need Fannie Freddie to prosper. We need it to do well. But now Trump has proposed, look, why don't we go ahead and do two things? Number one, why don't we take Fannie Freddie public? Because the government will get roughly about $50 billion for its stake in the entity. But also, why don't we merge them into one entity? Why do we need a Fannie Mae and a Freddie Mac? Why don't we just go ahead and make them one thing, of which the title has not yet been decided?
And in so doing, we'll save about $15 billion in annual overhead costs by streamlining them and bringing them together. And then we'll let the free market expand what they do, because as a capitalist society, we've always felt that businesses that are run based on the free market are superior and do much better than those run by the government. But then people hear of this potential of merger and IPO, and they think, well, what will the impact be? Well, I can't give you the impact for everyone in America or any other industry, but let's just explore what it would do to the mobile home park sector, because that's all we really care about at this podcast. Well, the first benefit, if you read up on the potential merger and IPO, is you'll end up with a much more efficient organization. And I think we all know that intrinsically would agree that free markets do much better, private businesses so much better managing things than the government does. Look no farther than what you've seen over these last several years regarding nonprofits, all of the waste and the abuse and nothing ever being accomplished. Look at the disastrous rail system out in California.
There's so many examples of money that is squandered because the government is not very good at running things. So I think we would all agree that if you went ahead and did the IPO and let them do their own thing like any free business, they will make better decisions and it will just run better. And through running better is probably going to give you a stronger, more stable Fannie Freddie, whatever the ultimate name is. And merging two identical businesses together, that's just common sense. That's what we would do with any industry like that. So I don't think anyone can really criticize the concept from an efficiency perspective. It just makes total sense. Another item, which I think park owners particularly will like, although it will also relate to other forms of mortgages that Fannie Freddie creates, is it will end this entire thing called the Tenant Bill of Rights. Now, this was something that really gained a lot of traction and horsepower with Biden during COVID. If you can remember back that far, it seems impossible to me. We were all so crazy as to go around wearing these little masks and things. All those things we did now look so nutty.
I worry what future generations will think of when they look back on videos and YouTube clips of all of us back then. But during that period, the government, when it was manic about trying to overhaul the entire concept, for example, of evictions, wanting to have an evictions moratorium during COVID, that they started to put into the agreements with borrowers under Fannie and Freddie that you had to do certain things regarding evictions and other items. And many people loosely called this the Tenant Bill of Rights. It didn't really have a material impact on probably anyone other than it was very annoying to operators. And it was fundamentally unfair because you were just trying to borrow money. And now they were trying to jam this very, very woke agenda down your throat. And it made no sense because it's not a part of traditionally how the mortgage market works. And clearly, if we sever this connection with the government, it's my understanding all of that will go away. So there's another reason that most mobile home park owners particularly would like the IPO of Fannie Freddie. But let's talk for a minute about also what it would do as far as interest rates, because that's what we all care about the most.
We all want rates to be as low as they can. When rates are low, all kinds of great things happen. When rates are low, it's easier for our customers to buy mobile homes. When rates are low, it's easier to borrow money for mobile home parks. When rates are low, cap rates are low and values are higher. So everyone loves lower rates, right? So the question is, will the IPO cause rates to go up or to go down? Well, my personal opinion on this from reading a lot about it is it's very similar to what happened to the insurance industry during the Obama years under that thing called Obamacare. Now, to understand what I'm going to talk about here, you had to be an adult paying your insurance premiums prior to 2007, 2008. But if you were, you probably recall you could have a family of three on a premium if everyone was healthy, not overweight, don't smoke, don't drink. I think I was paying like $350 a month, and that was for unlimited coverage for a family of three. Post-Obamacare, that price skyrocketed. It got as high as $2,000 a month for the exact same insurance that I had for $300 pre-Obamacare.
Why was that? Because under Obamacare, they took away the ability of the insurance companies to pick and choose who they wanted to do business with. Picking those people who were healthy, that's who they wanted to insure were people who were healthy, but they didn't want people who were morbidly obese, chain-smoking, drinking constantly with all kinds of underlying health issues. They didn't want them in their health exchanges because that was going to cost everyone else a ton of money. And that's kind of what you've been having going on with Fannie Mae and Freddie Mac, because Fannie Mae and Freddie Mac, as part of all these different government things that they were mandating, were making them engage in loans that were not as profitable as other loans. There are certain locations, certain demographics of borrowers, certain price points of homes that just don't make any money. They have much greater defaults and much greater losses. So in many ways, the interest rate that we all pay when you go out and get the Fannie Freddie loan in some ways is tied to the fact, hey, we've got to have a surplus to offset all these bad loans.
I'm assuming that if it's privatized, or not privatized, I'm wrong direction there, IPO made public, but severed from the government, they won't make those loans anymore. And that's going to be a huge issue for those people, for example, down where I am in southeastern Missouri in a rural area. Yes, it will be much harder to get home loans because they may say, ah, rural loans, we don't want to touch them, there's very few buyers in the event of a default, we don't like the credit, we don't like anything about it, and they may not make those anymore. From a mobile home park perspective, though, we have the lowest default rate of any loan, to my knowledge, within Fannie Freddie. So we should be kind of the darlings of that business and our rate should go down because they'll try to do much better loans for much better borrowers and much better properties, and we definitely are the top of that pyramid. So I think, actually, by going through the IPO and severing the government, it'll actually make rates go down. Also, it's going to make a more aggressive business because if they're then a freestanding company merged together into one very efficient shell, they'll be going out there trying to do as much origination as they can.
They'll have to compete against Conduit, they'll have to lower their rates down to beat Conduit, which they already are, but they'll definitely keep getting more and more in tune with the competition trying to have an ever burgeoning supply of mortgages. And again, that's great for mobile home park owners who will probably enjoy, for example, minimum loan size reductions. Also, we'll probably see more efficient and faster approvals because we know that a business independent of the government can probably make decision-making a whole lot better. The bottom line is there's going to obviously be winners and losers if it were to happen, it's not done yet. It's my understanding, though, that it does not require really any congressional oversight, that you can do this in a manner, from what I read, without having a big bill that you have to ram through Congress. But there's no doubt that mobile home park owners, I think, will do well from the IPO and from the merger. So as far as I'm concerned, and most park owners, when you read about it, I certainly would not dread it. I think it's actually good news. This is Frank Rolfe, The Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.