Fannie and Freddie’s Path Out of Conservatorship: The Slow March Toward Clarity

The discussion around privatizing Fannie Mae and Freddie Mac has resurfaced under President Trump’s second term, based on heightened rhetoric and political interest. While some momentum has been generated, particularly with the appointment of Bill Pulte to help guide the process, there remains a vast difference between conceptual support and executable policy.

The road to re-privatization is long and littered with complex decisions. Fundamentally, transitioning Fannie and Freddie back to private entities will require a multi-stage process not unlike preparing for the largest IPO in U.S. history. This includes clarifying corporate structure, deciding the scale of operations post-conservatorship, and determining how much capital the entities need to hold to be considered safe and independent; by most calculations, they're only halfway to an adequate capital buffer. The Treasury and FHFA would need to resolve issues such as how to compensate the government for its preferred stock and address the rights of legacy shareholders who’ve waited nearly two decades for resolution.

One major sticking point is whether any such transition requires Congressional action. The Trump administration appears to be pursuing a path that circumvents Congress altogether, which is a double-edged sword. While avoiding legislative gridlock could speed up the process, it also means fewer institutional checks, making it even more critical that the administration communicates early, clearly, and collaboratively with industry stakeholders to avoid destabilizing the mortgage market.

The most critical factor in an orderly transition is trust. That trust must be cultivated not only through a sound privatization framework but also through addressing the market’s longstanding question: will there be a federal guarantee on GSE-backed mortgage securities? Whether implicit or explicit, the presence of a backstop is essential for liquidity and rate stability. Though MBS certificates today don’t carry a formal government guarantee, the market treats them as if they do, due to the conservatorship status and the Treasury’s de facto support. As Mark Calabria has pointed out, entities of Fannie and Freddie’s size are “too big to fail,” and that practical reality is unlikely to change.

Any move toward privatization must also consider the political calendar. Even if a 2026 timeline is more realistic, midterms and potential shifts in congressional control could introduce new roadblocks or recalibrate priorities. Democrats may push for more robust affordable housing or DEI provisions as part of any privatization framework, but ultimately, if legislation isn’t required, their influence may be limited to hearings and public pressure.

Importantly, a disorderly transition (one rushed or conducted without full market engagement) could damage investor confidence and liquidity in MBS markets, creating real risks for borrowers and lenders alike. Without a clear plan and sufficient lead time for adjustment, rate volatility could spike, and affordability could erode.

At the end of the day, privatizing Fannie and Freddie is not about ideology, it’s about execution. The scale and influence of these institutions make them central to the American housing system, and any changes to their structure must be made with discipline, transparency, and long-term economic stability in mind. A rushed process risks unintended consequences; a well-structured one, however, could preserve the strengths of the GSE model while modernizing it for a new era. Whether 2026 becomes a turning point or another missed opportunity will depend on whether this administration moves beyond tweets and speeches, and toward real, inclusive policy making.