How GSE Privatization Could Happen
HUD's new leader and some experts have floated the idea of taking this giant step. What would that mean?
After the better part of two decades in conservatorship, Fannie Mae and Freddie Mac may soon enter a new era. Under a proposal floated by new U.S. Department of Housing and Urban Development Secretary Scott Turner, the GSEs could be privatized under the Trump administration. A number of Trump administration officials have echoed that sentiment, asserting that the privatization of the GSEs looms as a priority.
It begs a number of questions: What potential routes are there to Fannie Mae and Freddie Mac reforms? What kind of time frame would be required for privatization? And what are the potential impacts of privatization on the multifamily industry?
Since the 2008 financial crisis, both Fannie Mae and Freddie Mac have been in conservatorship. Working with the Treasury Department, Congress and the Federal Housing Finance Agency. Turner envisions turning the GSEs free from government conservatorship, while ensuring the stable housing market is maintained.
A delicate issue
Critics have argued that GSE privatization remains an exceptionally delicate matter, one risking the possibilities of increasing mortgage rates and a decline in confidence among investors.
Mortgage Bankers Association President & CEO Bob Broeksmit stressed the need to move cautiously on any privatization effort when he addressed the topic during MBA’s 2025 Commercial/Multifamily Finance Convention and Expo last week.
“I don’t have to tell you that conservatorship was never meant to be permanent,” he said during the conference. “It was always supposed to be a stopgap measure until the situation improved. Well, that day is getting closer. The GSEs are retaining capital, and FHFA has implemented many necessary reforms. But at the MBA, we’re more insistent than ever that releasing the GSEs must be done right.”
Broeksmit emphasized that there is simply too much at stake to rush a decision of this magnitude. MBA is raising concerns that, if done hastily, GSE privatization could get messy.
“Most importantly, the market needs an explicit government guarantee on mortgage-backed securities,” he added. “Without it, there’s no way to ensure the liquidity through all economic cycles that supports affordable single-family and multifamily lending.”
Among issues that must be reconciled before an exit of the GSEs is undercapitalization. Fannie and Freddie have a capitalization of a bit less than $150 billion, far short of the $300 million capitalization required to exit conservatorship.
Another issue involves the GSEs’ yearly lending cap. In 2024 the cap was $140 billion, but debt issued for workforce housing developments is exempt. Each GSE’s investment caps on Low-Income Housing Tax Credits have been raised from $850 million to $1 billion annually. Some observers worry that privatization could impact the GSEs’ affordable housing objectives.
Routes to reform
According to one mortgage market veteran, restoring the GSEs to private companies under the Trump administration could take place in several different ways.
“The most likely route is through regulatory action,” Jay Sobo, a decades-long mortgage professional and president of Centennial, Colo.-based Liberty Financing, LLC., told Multi-Housing News. “This would involve the government passing laws that once again allow private investors to take full control. Although this could be a sudden change, it would seem more plausible that the move would happen in phases, shifting the business to the private sector bit by bit.”
Sobo noted that this might look like slowly bringing in private investors through selling shares to reduce the government’s role. Such a route would allow a gradual change of control.
Adding the transition “would certainly not happen overnight,” Sobo said, and would involve drafting proposals and passing new legislation. “That would only be the beginning, as the subsequent move to a private model could take many additional months or years.”
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“A slower approach would help avoid any unexpected outcomes or negative impacts to the housing market,” he predicted. “The exact timing heavily depends on political decisions, economic factors and support within the Senate and Congress.”
Gradual transition
Were the government to agree to complete privatization, private investors would determine how Fannie Mae and Freddie Mac would be run, Sobo said. There may also be hybrid solutions proposed, involving some private direction and some government oversight of the GSEs.
Another option would be a gradual transition from the present complete government control to a hybrid model for a period of time, he continued. A final transition would usher in a permanent, completely privatized GSE model.
There’s no doubt that shifting to a private model would impact the loans offered and backed by the agencies. That could bring in additional options for interest rates, loan durations or down payment requirements, based on the appetite of investors, Sobo said.
Lending options could be unveiled for individuals and families who currently fail to qualify due to limited options and exacting protocols.
“However, without a government safety net, investors might demand higher returns to cover the additional risk, making borrowing a bit more expensive,” he remarked. “On the other hand, a private system would almost certainly encourage new ideas and innovative services, which could also bring the possibility of lower costs while still delivering more flexible loan options in the long run.”
