With mortgage rates rising and high housing costs under the microscope, don't expect secondary mortgage market giants Fannie Mae and Freddie Mac to exit government conservatorship any time soon.

That's the takeaway from a Monday note from Mizuho analysts Dan Dolev, Eyal Ben-Eliyahu, and Alexander Jenkins downgrading both stocks and cutting their price targets by at least half. The team lowered Fannie Mae's price target to $5 from $10 and Freddie Mac's to $4 from $9.

Three headwinds drove Mizuho's downgrades, the analysts wrote. Higher mortgage rates, which "make privatization more complicated politically," are one. Another is Federal Housing Finance Agency head Bill Pulte's position on the two companies buying more mortgages to hold on their balance sheets. The third is recent changes to the credit scoring system.

"We anticipate the first headwind to cause political complications for privatization, and the other two to result in a slower capital accumulation timeline," the analysts wrote. "We remain cautious until rates are lower and/or the other two are resolved."

Fannie Mae and Freddie Mac common shares were down 12.7% and 13%, respectively, shortly after the market opened. Fannie Mae was on track for its lowest close since early January 2025, while Freddie Mac was on pace for its lowest close since late December 2024.

The Federal Housing Finance Agency, Freddie Mac, and Fannie Mae did not immediately respond to requests for comment.

Mizuho's ratings, like those of other analysts covering the stocks, are based on the potential for the two companies, which buy mortgages from lenders and package them into securities, to exit their long-running government conservatorships.

"The investment case is not about business quality, which is exceptional, but about the resolution of a 17-year conservatorship that has kept common equity structurally subordinated to Treasury senior preferred stock," the analysts wrote in their investment thesis.

The Federal Housing Finance Agency has overseen the two companies since they were placed under conservatorship in 2008 as a result of the 2008-09 financial crisis. The Treasury also holds a sizable stake in the companies through senior preferred stock. The companies' common shares, meanwhile, trade on OTC Markets.

Going into President Donald Trump's second term, the stocks climbed on hopes that the administration would make removing the two companies from their government conservatorships a priority. But official statements on an exit have been few and far between. Fannie Mae and Freddie Mac stocks are down 67% and 68% this year, respectively, according to Dow Jones Market Data.

The Mizuho analysts lowered their estimated chances of an end to conservatorship, reducing their "probability of a fast exit by 2028 from 30% to 18% for FNMA and 20% to 9% for FMCC."

The Monday morning note followed a blog post on Sunday by investor Michael Burry, known for his bearish bet against the housing market on the eve of the 2008-09 financial crisis. Burry wrote that "both stocks have retraced essentially all their gains since Trump's election, and they put in a giant head-and-shoulders-and-elbows top for added emphasis."

"What that chart predicts, technically, is worthless stock," he continued. "[Fannie Mae and Freddie Mac's] stocks, which took a bit of the meme juice, are coming close to expelling that poison from their bodies."