President Donald Trump has said that his administration is working to privatize Fannie Mae and Freddie Mac and end the government-controlled conservatorship of the two that has been in place since the 2008 housing crash. The plan being floated involves taking the two entities public while retaining key U.S. government guarantees to backstop loans.
Combined, the two agencies provide critical liquidity to the U.S. housing market.
- In 2024, Fannie Mae provided $381 billion in liquidity, which enabled the financing of approximately 1.4 million home purchases, refinancings, and rental units.
- Freddie Mac delivered $411 billion of liquidity into the U.S. housing finance system, helping 1.6 million families buy, refinance, or rent a home in 2024.
Urban Land: What are some of the key pros and cons to privatization of Fannie Mae and Freddie Mac for the single-family and multifamily housing markets?
Brian Bailey, senior managing director, head of research at Trimont
First, we have to put the issue of privatization in context. We don’t know how this is going to end up, as there are . . . variations on how this could look. It could be an IPO-type structure, or it could be a structure where the government maintains primary control and sells off a piece to investors. So, there are some nuances in terms of how the privatization is ultimately structured and what that may mean to how the entities operate going forward.
One of the pros around privatizing Fannie and Freddie is that it’s going to raise revenue for the government and reduce some of the fiscal burden on the government. Another positive is [that] it may create a situation where, if they are operating more like a private sector business, they may have to be more innovative. On that front, you may see the cost of financing come down, which would be a huge benefit in this environment, when almost everybody identifies the residential, as well as the multifamily market, as unaffordable.
For the cons, things seem to be operating fairly well at this juncture, so the question is, why change? Looking back at the history of housing financing before Fannie and Freddie, you had to put 40 to 50 percent down to buy a home prior to the arrival of the government in the residential mortgage market. It was very costly and very inefficient; we didn’t have liquidity, and we didn’t have transparency. We have that now with Fannie and Freddie.
One area where Fannie and Freddie have been able to create value that translated into cost savings for the consumer is the implicit guarantee that, in essence, the government will come to the rescue if Fannie and Freddie run into trouble. If the government guarantee changes significantly, we could see costs go up, which will have to be passed on to the consumer.
There are still questions around how a privatization would be structured, and it’s an incredibly complex issue, given the vast size of the agencies and the trillions in liquidity that they provide for the housing market. As the complexity grows, the risk also grows. We don’t know exactly how this will work out, but we know that privatization is being considered [as] the economy and the population are much more sensitive to uncertainty.
Jamie Woodwell, senior vice president of commercial/multifamily policy and strategic industry engagement at the Mortgage Bankers Association
Many of the positives of releasing the GSEs [government-sponsored enterprises] from conservatorship and bringing in additional capital would depend on a thoughtful and deliberate exit, including Congress providing an explicit backstop of their mortgage-backed securities [MBS]. This would protect the existing liquidity and market stability of the single-family and multifamily mortgages [that] the enterprises purchase and the MBS they issue. A thoughtful exit would also protect taxpayers by putting private capital at risk in front of the government and maintain the GSEs’ focus on affordability through their annual housing goals and other legislative, regulatory, and mission requirements. A GSE exit would also put Fannie Mae and Freddie Mac back on a business-first posture, removing many of the policy swings that come to the enterprises with changes in administration.
The largest concern about a GSE release would be if it was done without appropriate steps to protect the stability and liquidity of the secondary mortgage market and [to] support homeownership and rental housing.
Sam Chandan PhD, founding director, Chao-Hon Chen Institute for Global Real Estate Finance at the New York University Stern School of Business
Fannie Mae and Freddie Mac play a foundational role in ensuring the stability and liquidity of the housing market. As policymakers consider the path forward, including a potential exit from conservatorship, it is essential that the enterprises’ capacity to provide broad and consistent access to capital remains intact. In the single-family market, their support helps sustain homeownership opportunities across a wide range of income levels and geographies, in particular through their support for the 30-year mortgage. In the multifamily sector, they are equally critical for the financing of rental housing, including affordable units that might face challenges in attracting private capital.
An orderly transition and the avoidance of ambiguity will ensure that risk premiums do not rise in a way that negatively impacts borrowers. In the multifamily segment, Fannie and Freddie are not just lenders; they help stabilize development pipelines, even if indirectly. Their consistent underwriting approach, especially in affordable and workforce housing, provides predictability in the capital stack and encourages new supply. Any reform must also account for the essential support they provide to rural communities, where other sources of capital are often inconsistent.
Any change to Fannie Mae and Freddie Mac’s conservatorship status may carry important implications for the federal budget. Apart from the treatment of the Treasury’s senior preferred shares, and depending on how the enterprises are structured post-conservatorship, there may be changes to how their assets and liabilities are treated in federal budget scoring, particularly if their status shifts closer to—or further from—the federal balance sheet.
Regardless of structure or ownership, the priorities must include preserving Fannie and Freddie’s mission-critical functions in support of housing affordability, systemic resilience, and uninterrupted access to capital through all phases of the real estate and macroeconomic cycles.
Christopher Thornberg PhD, founding partner, Beacon Economics
Yet again in Washington, D.C., there is talk about privatizing Fannie Mae and Freddie Mac. The obvious consequence of such an action would be to raise the cost of mortgage debt, as the implicit guarantee of government backing will be lost, and higher risk for investors means a higher rate of return . . . . How much higher than current rates is unclear. It could well be de minimis, given how jumbo mortgage rates financed through private markets are only a tiny bit more expensive than conventional loans. That’s true additionally for the multifamily market, where private sector lenders are largely competitive with GSE loans.
It isn’t just the cost of capital but [also its] availability. It must also be remembered that Fannie was created by FDR’s New Deal. In the wake of the banking collapse of the 1930s, there was simply no housing financing to be had at all. Freddie was created in 1970 for similar reasons. Such a backstop would be unnecessary if we could trust the Federal Reserve to do the right thing at the right time—which we really can’t. In the 1930s, the Fed erred by under-reacting to the banking crisis. In the 2020s, the Fed erred by over-reacting to the pandemic. To . . . cool the overheated economy they created, the Fed engaged in two years of quantitative tightening in 2022 and 2023 that shrunk bank reserves and made bank credit hard to get, at least according to the Senior Loan Officer Opinion Surveys from the Federal Reserve. But the credit tightening seen in C&I [commercial & industrial] and commercial real estate loans was not seen as dramatically in mortgage financing, likely because of Freddie and Fannie’s role, [though] we must again admit that estimating the economic value of this credit availability is, at best, fuzzy.
Indeed . . . Fannie and Freddie were clearly part of the problem in the housing bubble of 2003–2007, necessitating their bailout in 2008, [but] it must also be remembered that they were still an important stabilizing influence through the Great Recession and likely helped the housing market recover faster than it might have otherwise. And the cost of the bailout was largely recovered in the following years as record profits from the recovering market ended up going to the U.S. Treasury. When thought of in this way, it seems as if Fannie and Freddie should probably be left as quasi-public lending institutions [that provide] a natural stabilizer for economic cycles, not unlike unemployment insurance and Medicare. That said, efforts should be made to constrain their overall scale and allow an active private sector lending system to operate alongside the GSEs, as it is private sector innovation that will help maintain the efficiency within such government operations.
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