Will Privatizing The Mortgage Giants Solve The Housing Crisis?

64 snips

Sep 4, 2025

The recent announcement of privatizing mortgage giants Fannie Mae and Freddie Mac could revolutionize home ownership in America. Their roles during the housing crisis are crucial, having made 30-year fixed-rate mortgages accessible. However, the potential return to risky subprime lending raises concerns. Private equity's influence threatens wealth equality among first-time buyers. Advocates are calling for a reevaluation of housing policies to support future generations amidst gig economy challenges, highlighting a complex path ahead.

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INSIGHT

Third Amendment Locked Up Profits

The 2012 Third Amendment rerouted nearly all GSE profits to Treasury via variable dividends.
Investors argue this effectively expropriated shareholder value and froze capital rebuilding.

INSIGHT

Re-Privatization Faces A Debt Problem

Returning the GSEs to public markets could restore market discipline and transparency.
But resolving the unpaid obligation to Treasury is a political and financial obstacle.

ADVICE

Design Public GSEs With Controlled Returns

Structure a public GSE to balance homeowner access with profitability and capped returns.
Consider utility-style returns and limits on executive incentives to avoid reckless risk-taking.

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This week, the Trump administration announced it would sell around 5% of mortgage giants and government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. The sale would begin to reintroduce the two firms to private markets after 17 years of government conservatorship. The decision to re-privatize two of the largest mortgage firms in the world, and a prominent reason why the United States is one of the only countries where people can get 30-year fixed-rate mortgages, will have enormous implications for the U.S. economy, housing market, and the American dream.

Fannie Mae was founded during the Great Depression with the idea of making mortgages more widely available to Americans by buying mortgage loans from banks. Freddie Mac came along in 1970 to provide competition and increase liquidity for mortgages. In part, Fannie and Freddie increased liquidity by repackaging their mortgages into mortgage-backed securities and reselling them to investors. In the early 2000s, the subprime mortgage crisis began as smaller, unregulated financial actors started offering risky mortgage loans and likewise repackaged them to investors. When the crisis imploded in 2008, it gutted the market for mortgage-backed securities, and the U.S. government seized Fannie and Freddie to prevent them from collapsing. The government feared that without Freddie and Fannie, many Americans would no longer be able to afford home ownership. Today, Fannie and Freddie still back roughly 50% of all mortgage loans, with other government agencies making up another chunk.

The Trump administration’s plans to take these GSEs public again will allow the two firms to raise billions through new stock offerings and shift risk back to the private sector. But the question is, why is the government doing this? Will it help fix the country’s housing crisis—which Trump has reportedly called a national emergency—or will it make matters worse? Bethany and Luigi get together to discuss what it would mean for Fannie and Freddie to go public, who benefits from these developments, and their implications for home loans, the housing market, and the American economy.

Also check out Bethany’s book, published in 2015: Shaky Ground: The Strange Saga of the U.S. Mortgage Giants

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