Since assuming office in January 2025, President Donald J. Trump and his administration have maintained their goal of releasing Freddie Mac and Fannie Mae, or the government sponsored enterprises (GSEs), from government conservatorship.
It is currently unclear what the path to this is, or if it will be completed. Mortgage Bankers Association (MBA) President Bob Broeksmit has claimed the administration does not consider the GSE privatization a priority, while Bill Pulte, director of the Federal Housing Finance Agency (FHFA) that oversees Fannie and Freddie’s conservatorship, has voiced intent to make financial cuts to the GSEs.
The National Housing Conference (NHC), a Washington, D.C., based nonprofit, published a paper this week in support of ending GSE conservatorship, but which outlines the risks that must be addressed during the process.
“It is increasingly irresponsible to leave in perpetual limbo these lynchpins of a $12.8 trillion single-family residential mortgage market and a $2.3 trillion multifamily mortgage market,” the paper states, and its goal is to provide “a comprehensive, non-partisan path” as well as “rationale, objectives, and policy recommendations” of moving the GSEs out of conservatorship.
The GSEs were placed in conservatorship in 2008 following the financial crisis and collapse of the mortgage market. Supporters of ending the conservatorship often claim the conservatorship was a crisis response that has become, in effect, permanent.
“Ending the conservatorship of Fannie Mae and Freddie Mac is the last major piece of unfinished business from the financial crisis,” said David Dworkin, president and CEO of the NHC in a press release about the report. “After 16 years of limbo, the time has come to move beyond conservatorship with a transparent, thoughtful and nonpartisan plan that addresses the remaining systemic flaws while preserving the vital mission of ensuring access to mortgage credit across the country.”
The NHC paper refers to the 2021 Collins v. Yellen Supreme Court decision, which reaffirmed the FHFA’s authority to act as conservator of Fannie and Freddie. That decision means “conservatorship has permitted a degree of political control over the mortgage finance system that was never intended.”
“While moving forward on recapitalization and release from conservatorship is by no means required to maintain a safe and sound mortgage finance system,” the paper clarifies, “without action we are effectively choosing in perpetuity, a nationalized housing finance model that operates as a utility with full government control and taxpayer risk in an increasingly politicized environment.”
The goal of ending the conservatorship should be to allow the GSEs to “operate as a business again,” the paper claims, but with sufficient regulation and accountability to ensure the GSEs’ goal of a stable mortgage market.
“NHC believes that a well-designed administrative end to the Enterprises’ conservatorship, combined with robust capital and risk-sharing, can provide the necessary assurance to investors while balancing political and practical constraints.”
To that end, the paper lists and details five priority goals to move FHFA out of a conservatorship role with minimal market disruption, sufficient capitalization of the GSEs and a regulatory framework that maintains the 2008 Housing and Economic Recovery Act (or HERA, the legislation that began the conservatorship) as its primary blueprint.
One of the five objectives is simply that the transition must be as transparent as possible to ensure stability for stakeholders, analysts, consumers, etc. The paper lists a phased rollout, “regular communication, stakeholder engagement and robust consumer protections” as key to ensuring the desired smooth and transparent transition of GSEs out of conservatorship.
Other objectives center around ensuring that the GSEs are still able to serve their mortgage market purposes during and after the transition, i.e., supply “broad, reliable, safe and sound” mortgage credit to consumers and mortgage funding liquidity for single and multifamily mortgages.
“Some market participants express concern that, post conservatorship, the drive for returns could dilute the focus on affordable housing,” the paper states, which is a key reason why NHC maintains that the HERA framework and its statutory affordable housing requirements be maintained.
Another key issue to address, the NHC claims, is the GSE’s implicit guarantee that the U.S. government will step in to back their securities if the need arises. This was only “implicit” because, pre-conservatorship, it was not explicitly stated in the Fannie Mae and Freddie Mac charter.
As the NHC paper outlines, the conservatorship in effect did away with the implicit guarantee because the government assumed full control over Fannie Mae and Freddie Mac. It remains unknown how markets will view the implicit guarantee if the conservatorship were to end.
Trump has claimed that if/when the GSEs are privatized, the government will maintain its implicit guarantee. The NHC paper concludes that “a statutory full faith and credit guarantee is politically unfeasible,” but that the previous implicit guarantee should be strengthened to ensure market confidence.
The FHFA, which exists primarily as a regulatory agency, should assume the role of an independent regulator—not conservator—of the GSEs, the NHC argues.
“FHFA is not merely a supervisor but assumes all the rights, powers and privileges of the Enterprises’ shareholders, directors and officers,” the paper explains when outlining the current conservatorship structure.
“Under conservatorship, Enterprise directors ‘do not have any fiduciary duties to any person or entity except to the conservator and, accordingly, are not obligated to consider the interests of the company, the holders of our equity or debt securities, or the holders of Fannie Mae (or Freddie Mac mortgage back securities) unless specifically directed to do so by the conservator.’”
As an independent regulator, the FHFA should retain, for instance, the ability to regulate guarantee fees that lenders pay to ensure repayment of the mortgage. This, along with a stronger implicit guarantee, will prevent a “race to the bottom” of both pricing and credit standards that was seen during the 2008 financial crisis.
“It is imperative that no action be taken that reduces the Enterprises’ participation in financing multifamily housing,” the NHC paper states, and for that reason the FHFA should also retain oversight of the GSEs’ capital allocations.
The paper also argues for “preserving a level playing field for lenders of all sizes,” and that it is “critical” for the Treasury Department and FHFA to amend the Treasury contract with Fannie and Freddie for new regulations that “ensure the GSE duopoly does not unfairly compete with primary market activities or engage in anticompetitive (and risky) activities.”
To read the full plan, click here.
