Fannie Mae and Freddie Mac are the backbone of the U.S. housing market, collectively supporting approximately 70% of all U.S. mortgages—equal to roughly half of the $12 trillion U.S. home loan market. As government-sponsored enterprises (GSEs), they provide liquidity and stability by purchasing mortgages from lenders, facilitating affordable housing and homeownership.
Their future role is now under scrutiny as discussions about privatization gain momentum. On January 2, 2025, the U.S. Department of the Treasury and the Federal Housing Finance Agency (FHFA) announced amendments to the Preferred Stock Purchase Agreements with Fannie Mae and Freddie Mac to ensure an orderly release from conservatorship. These amendments restore Treasury’s consent rights for any exit from conservatorship and require the FHFA to seek public input on potential impacts to the housing market and the GSEs before such a release. The changes aim to balance market stability with the goal of eventually transitioning the GSEs out of government control.
With debates intensifying over whether these GSEs should exit government conservatorship, stakeholders in the housing and commercial real estate (CRE) markets are weighing the potential impacts.
Flashback to the Beginnings of Fannie and Freddie
Fannie Mae was established in 1938 during the Great Depression to stabilize the mortgage market. Freddie Mac followed in 1970 to foster competition in the secondary mortgage market. Both entities were initially government agencies but transitioned to private ownership over time, and this private structure led to a focus on shareholder returns, which some analysts believe contributed to the risky behaviors preceding the 2008 crisis.
Facing losses exceeding $200 billion in 2008—vastly more than they had in cash—due to risky mortgage-backed securities, Fannie Mae and Freddie Mac were placed under conservatorship by the Federal Housing Finance Agency (FHFA). The U.S. government assumed an 80% ownership stake and rights to their profits, making taxpayers the ultimate backstop for the housing market.
The subsequent government conservatorship was intended as a temporary measure to stabilize the housing market, but it has persisted for over a decade.
The Impact of Privatization on Commercial Real Estate
The Trump administration has indicated interest in privatizing Fannie Mae and Freddie Mac, aiming to reduce government involvement in the housing market and increase competition, reducing reliance on taxpayer funds. While a similar push during the previous Trump administration was unsuccessful, this initiative remains a contentious topic.
Critics warn of significant risks if government conservatorship ends. Without government guarantees, mortgage rates could rise as private investors demand higher returns to offset increased risk. This could make housing less affordable, disproportionately affecting lower-income households.
For the CRE sector, the effects of privatization, while indirect, could influence investor behavior and capital availability, particularly in financing multifamily housing. Fannie and Freddie play a key role in financing multifamily housing, ensuring liquidity for workforce and affordable housing projects—often under terms that private lenders might not match. Privatization could increase borrowing costs for multifamily developments, potentially hindering new projects and limiting the availability of affordable rental housing.
Their stabilizing influence on markets is significant. During the COVID-19 pandemic, for example, Fannie and Freddie’s role in ensuring liquidity was pivotal in preventing a broader economic crisis.
Privatization would likely lead to greater reliance on institutional capital, reshaping the market landscape. Proponents argue that private lenders could bring innovation and competition, while critics fear that profitability would take precedence over affordability, leaving underserved markets behind. There are also concerns that privatization could lead to a repeat of pre-2008 conditions if private entities loosen lending standards, increasing the risk of another financial crisis.
There’s plenty of debate around this issue—what’s your take? Should Fannie and Freddie remain as they are, or is privatization the right move? Email us at insights@lightboxre.com to tell us what you think!
What Comes Next?
The path to privatization involves navigating complex legislative hurdles and addressing stakeholder concerns. As discussions progress, stakeholders must remain engaged, monitoring developments and contributing to policy debates to shape the outcome in ways that benefit the broader market.
Ultimately, whether privatization becomes a reality or remains a theoretical debate, its implications will ripple across residential and commercial markets alike. Understanding these potential shifts is essential for navigating the uncertain road ahead.
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