The future of Fannie Mae and Freddie Mac: Why this debate matters now

Seventeen years ago, Fannie Mae and Freddie Mac were placed into conservatorship—a "temporary" measure that has now stretched into nearly two decades. Today, with a new administration and shifting economic conditions, the conversation about their future is again in the spotlight. Should they be privatized, restructured, or left as they are?

On a special Walker Webcast, I sat down with Jim Millstein, Co-Chairman of Guggenheim Securities; Jim Parrott, non-resident fellow at the Urban Institute; and Mark Zandi, Chief Economist of Moody’s—three of the foremost experts on housing finance—to tackle this pressing issue. Our discussion revealed deep divisions, not only in potential solutions but also in how we define the problem itself.

Are Fannie and Freddie still fulfilling their mission?

At their core, Fannie Mae and Freddie Mac exist to provide liquidity to the U.S. housing market, ensuring access to affordable mortgages. When asked if they meet this mandate today, all three guests agreed: yes.

• Jim Millstein highlighted the sheer scale of the secondary mortgage market the GSEs support, with over $7 trillion in mortgage-backed securities (MBS).‍
• Jim Parrott emphasized their stability and reliability in keeping capital flowing through the housing finance system.‍
• Mark Zandi pointed out a unique feature of the U.S. housing market—the 30-year fixed-rate mortgage—which exists largely because of the GSEs' role.

If they are doing their job, why change anything? That is where the debate gets more complicated.

The problem with conservatorship

Conservatorship was never meant to last this long. Banks placed into conservatorship typically return to private control or wind down within a few years. The prolonged government control of Fannie and Freddie has created unusual dynamics:

• Governance issues: The FHFA acts as both regulator and de facto board of directors, leaving no independent shareholder oversight.
• Investment constraints: Unlike their private-sector peers, the GSEs face limits on executive compensation and investment in technology.
• Political risk: Every new administration brings the potential for dramatic policy shifts, adding uncertainty to a market that thrives on stability.

This is where my perspective aligns with Jim Millstein’s. If we continue to operate under conservatorship, we must acknowledge the constraints it places on these institutions—constraints that may ultimately weaken their ability to serve the market long term.

The case for privatization—and its risks

One potential path forward is an administrative release, where the government spins the GSEs back into private hands under a regulated framework. This idea gained traction in the first Trump administration and will likely resurface.

Key argument for privatization: It would restore normal governance structures, allowing Fannie and Freddie to operate as true businesses rather than government-controlled entities. They could attract top talent, invest in modern technology, and function more efficiently.

The risk: According to Mark Zandi, privatization could disrupt the mortgage market, raising costs for borrowers. He estimates that mortgage rates could increase by 20-40 basis points due to uncertainty and new capital requirements.

But are higher mortgage rates a guaranteed outcome? That depends on how privatization is structured. If Fannie and Freddie retain access to an implicit or explicit government backstop—similar to large banks—the impact on rates may be smaller than feared.

The role of an explicit vs. implicit guarantee

One of the most hotly debated aspects of privatization is the federal guarantee. Today, Fannie and Freddie benefit from an implied government backstop, meaning investors assume the government will step in if necessary—but it is not explicitly stated.

• Explicit guarantee (preferred by Parrott & Zandi): This would make the backstop official, lowering borrowing costs and ensuring stability.
• Implicit guarantee with regulatory scaffolding (Millstein & my view): This keeps the government involved while avoiding a formal liability on federal balance sheets.

The choice between these models will determine the long-term viability of privatization. If the government withdraws support entirely, the GSEs may struggle to attract private capital at acceptable terms.

What happens next?

For years, Congress has debated reforming the GSEs without taking definitive action. While a legislative solution would be ideal, political realities make it unlikely. That leaves administrative action as the more probable path—especially under an administration that has already signaled its desire to move Fannie and Freddie out of government control.

At Walker & Dunlop, we have a front-row seat to this debate. As one of Fannie Mae and Freddie Mac’s largest lending partners, we understand the value they provide and the risks of inaction. We are concerned that a rushed privatization of Fannie Mae could undermine market confidence without an implicit or explicit government guarantee, while also recognizing that change is inevitable and long overdue, given the evolving financial landscape.

The future of the GSEs is not just a policy issue—it affects every lender, borrower, and investor in the housing market. Whether reform comes in the form of privatization, a new utility model, or a modified conservatorship, one thing is clear: this conversation is not going away anytime soon.

Catch the full episode

To hear the lively debate on Fannie and Freddie privatization, watch the entire Walker Webcast episode here. Also, because this issue is so complex, look for a follow-up episode in the next few months where we will revisit this topic and examine how the privatization debate has evolved, along with its impact on commercial real estate.