Fannie and Freddie privatization push gains momentum 

Thinking big about residential real estate success requires a big-picture perspective. Industry Decoded features industry experts who can enrich your understanding of issues affecting the industry as a whole.

The views expressed in this column are solely those of the author.

The debate over the future of Fannie Mae and Freddie Mac has taken a dramatic turn with the recent shake-up at the government-sponsored enterprises (GSEs). Newly appointed Federal Housing Finance Agency Director William Pulte has wasted no time making sweeping changes to the boards of both entities, signaling a renewed push toward privatization. But the stakes are high, and the potential consequences of lifting a level of government control that has been in place since the Great Recession extend far beyond boardroom decisions — they could reshape the U.S. mortgage market for generations to come.

Why Fannie and Freddie have government oversight

To understand the implications of privatization, it's essential to revisit why Fannie Mae and Freddie Mac were each placed under a conservatorship, a form of government oversight, in the first place. During the 2008 financial crisis, both suffered massive losses due to their exposure to risky mortgages. As liquidity in the housing market dried up, Fannie and Freddie required a $191 billion bailout from taxpayers to prevent systemic collapse.

The federal government then effectively placed both under FHFA control, a move that stabilized the housing market by ensuring continued liquidity for mortgage lending. Since then, the two entities have repaid the government in full — with interest — and returned to profitability. However, their role as quasi-public entities remains unresolved, leaving policymakers to debate whether they should be released from conservatorship.

Why the push to privatize matters

The primary argument for privatization is that prolonged government control distorts the mortgage market. Critics argue that the current structure limits competition and keeps taxpayers on the hook for potential losses should another housing crisis emerge. Advocates for privatization — including Pulte and other policymakers aligned with the Trump administration — believe that returning Fannie and Freddie to private hands would foster innovation, reduce risk to taxpayers and encourage a more competitive lending environment.

On the other hand, opponents warn that privatization could disrupt the housing market by reducing access to affordable mortgages. Fannie and Freddie currently back more than half of all U.S. mortgages, providing a government guarantee that keeps rates low.

Pulte's bold moves and the bigger picture

Within days of his confirmation as FHFA director, Pulte removed eight board members at Fannie Mae and six at Freddie Mac, and appointed himself chairman of both boards. This level of direct involvement is unusual and suggests an aggressive strategy to fast-track changes. While Pulte's critics argue that his approach lacks transparency, his supporters see it as a long-overdue effort to move the GSEs toward independence.

Among Pulte's appointments was Christopher Stanley, a cybersecurity expert with ties to Elon Musk's companies. However, Stanley resigned just one day after being named to Fannie Mae's board, fueling speculation about internal disagreements or external political pressures.

Potential impacts on the mortgage industry and borrowers

If Fannie and Freddie are removed from conservatorship, the implications will be wide-ranging.

• Mortgage rates could rise: Without government backing, investors may perceive Fannie and Freddie as riskier and demand higher returns on mortgage-backed securities. This could translate to higher interest rates for borrowers.

• Availability of loans may change: The 30-year fixed-rate mortgage — a staple of the American housing market — could become less common if private investors push for shorter-term or adjustable-rate loans.

• Private competition may increase: Privatization might open the door for more competitors in the secondary mortgage market. While this could lead to more innovation in lending, it could also increase volatility.

• Low-income and first-time buyers at risk: Fannie and Freddie currently play a key role in ensuring affordable mortgage access for lower-income borrowers. A shift to private control could reduce their commitment to these programs, making homeownership more difficult for many Americans.

The road ahead

While the Trump administration and FHFA leadership appear committed to privatization, the process is far from simple. Congress would likely need to pass legislation to formalize the transition, and market reactions could create unforeseen challenges. Moreover, housing advocates and consumer protection groups will likely push back against any reforms that threaten affordability or access to credit.

The coming months will be critical in determining whether Pulte's moves mark the beginning of the return of Fannie and Freddie to the private sector or just another chapter in the long-running debate over their future.

Coby Hakalir has been a leader in the mortgage industry for almost three decades. He currently leads the mortgage banking and mortgage tech division for T3 Sixty, one of real estate's most respected management consultancies, and resides in Northern California. (Note: Real Estate News is an editorially independent division of T3 Sixty.)