Here's what a veteran economist says needs to be done to keep the housing and mortgage markets stable while ending the GSEs' conservatorship
In 2008, Fannie Mae and Freddie Mac were put in timeout. That timeout has lasted 17 years.
After many attempts to take the government-sponsored enterprises (GSEs) public for almost two decades, things started moving when the Trump administration started talking about ending conservatorship of the two entities.
Now, with talk about potentially merging them and starting an Initial Public Offering (IPO) to help invest in them, one senior economist discusses how things got to this point, and what needs to happen to ensure they continue to be an important part of the mortgage industry.
Mike Fratantoni (pictured top) is the chief economist and senior vice president of research and business development at Mortgage Bankers Association (MBA). He stresses the importance of Fannie and Freddie to the overall industry.
“Obviously, they are critical, providing liquidity to the secondary market, and supporting the provision of affordable housing on both the single-family and multifamily sides,” Fratantoni told Mortgage Professional America. “If you look at numbers, they are maybe half of the origination volume on the single-family side, and about 40% of the multifamily side. They are really important enterprises.”
Safeguards still needed
In 1938, Congress created the Federal National Mortgage Association, better known as Fannie Mae. It was joined in 1970 by the Federal Home Loan Mortgage Corporation, or Freddie Mac. This move provided competition and stability in the secondary market.
By the 2000s, the two GSEs had grown into massive companies. However, in the effort to continue to push that growth, excessive risks were taken, which led in part to the housing collapse of 2008. The government was forced to bail them out.
“If you look prior to 2008, they were really quite forces of nature,” Fratantoni said. “They tended to really be pushing to grow the companies and grow their profitability. Over time, they took a bit too much risk, failed in 2008, and had to be rescued by the Treasury. So, $200 billion or so of taxpayer money was put into keeping them solvent, which was successful to the extent that it kept the secondary market open. But they have been in conservatorship ever since.”
Higher capital requirements and legislation like the Dodd-Frank Act have helped to put safeguards in place. Fratantoni said the MBA believes some additional safeguards will need to be confirmed to make sure the changes don’t negatively affect the market.
“One is clarity about the nature of the government backstop,” he said. “Before 2008, their security was not backed by the US government, but investors around the world sort of took that with a wink and a nod and said, ‘Well, we think they're probably going to jump in if needed.’ That was the implicit guarantee notion. I think there was a consensus that it wasn’t really a way to run a railroad.
“You need a more certain commitment about when, how and where, and to what extent the government would backstop the mortgage-backed securities in particular. We're talking about a $9 trillion market. It's the second most important market in the world after US Treasuries. It's really, really critical that that remains stable.”
While the MBA believes that the guarantee needs to be explicit, Fratantoni said that, like deposit insurance, the GSEs could pay for that guarantee.
“We were always in the view that it needs to be explicit, so you say very clearly, this is when and how the Treasury might step in to back up these enterprises,” he said. “It wouldn't be free, just like deposit insurance isn't free for a bank. The same sort of analogy would hold here, that the government back-up will be paid for by Fannie and Freddie through some form of a premium, just like a deposit insurance premium.”
Another major factor the MBA is calling for is the continued “bright line” that makes it clear that Fannie and Freddie will not operate in the primary market, and will just support the secondary market.
“Fannie and Freddie's congressional charters say they can't originate mortgages, and they're there to provide support,” Fratantoni said. “The MBA has always interpreted that as there is a line between what are primary mortgage market activities that all the actors that you're familiar with work in, and the GSEs shouldn't play there. They shouldn't be picking winners and losers in the primary market. They should be in the background, acting to support and provide liquidity in the market.”
Paulson’s timeout
Fratantoni said the original plan was to take in the GSEs, fix them up, and eventually turn them loose again. So far, nearly two decades later, that hasn’t happened.
“When they were initially put in conservatorship, the Treasury secretary at the time, Hank Paulson, said, ‘We’re going to take a timeout, sort of fix what was wrong with the business models, put them on a more sustainable footing, and then proceed from there.’ In the intervening 17 years, there’s been a lot of effort to try to do exactly that. It was a much longer timeout than I think Paulson was thinking.”
Mortgage attorney Marty Green explains how this move, if it comes to fruition, could create synergies and provide greater certainty to the mortgage market, which could lead to lower rates. However, others warn it could spike costs for homeowners.https://t.co/eeWHiFLFdf
— Mortgage Professional America Magazine (@MPAMagazineUS) August 14, 2025
The MBA is in favor of ending the 17-year-long timeout that has kept the GSEs in conservatorship. However, Fratantoni stresses that things must be done in a way to avoid adding volatility to the market and potentially spiking mortgage rates.
“MBA has been supportive of moving the enterprises out of conservatorship, because I think what our members have seen is Fannie and Freddie over time, becoming less responsive to market needs, not having that sensitivity of a private company,” he said. “Pre-2008, they were acting like the private sector in terms of speed, responsiveness and ability to work with customers and meet their needs.
“That will be the benefit of moving them out of conservatorship. Perhaps this proposed IPO is moving in that direction. So that's the positive. But the risk is that could all be overwhelmed if there's a disruption in the secondary market that would lead to either more volatility in rates or a higher level of rates.”
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