There has been much talk recently about the potential release of Fannie Mae and Freddie Mac from government parents who have been in custody for the past 17 years. While neither entities lend directly to home buyers or real estate investors, they play a key role in the mortgage industry, and the impact of potential parental releases is significant for the housing market. It’s important to understand what all of this means for those trying to buy a home using a mortgage.
Fannie Mae and Freddie Mac’s role in the housing market
Fannie May and Freddie Mac were created to help more Americans achieve homeownership. Fannie May was chartered by the US government in 1938 and Freddie Mac in 1970, and “helped us to ensure a reliable and affordable mortgage funding nationwide.” According to the federal housing finance agency (FHFA). These two government-sponsored companies, or GSEs, play a key role in the mortgage industry. They provide banks and lenders who make mortgages to home buyers with access to liquidity and capital.
Fannie and Freddie have set the criteria for underwriting traditional mortgages.
– Brent Evinson
President, ideal mortgage
The way they do this is pretty easy. Fannie May and Freddie Mac buy mortgages from lenders and hold the portfolio or bundle them into mortgage-backed securities (MBS) sold to large banks and investors. Mortgage lenders will use the cash they receive from GSE to create a new loan. This process ensures lenders provide affordable and available lending supplies.
They also play two other important roles. “Fannie and Freddie have set the standard for underwriting traditional mortgages,” says Brent Ivinson, president of Colorado’s Ideal Home Loans. Ivinson says this will ensure lenders are guaranteed to quality of their loans, eliminate borrower uncertainty, and make their loans clear and consistent guidelines to make them more attractive to investors when packaging them into MBSS.
Ed Delgado, managing director of Mortgage Policy Advisor, a strategic advisory firm, said, “The criteria established by Fannie Mae and Freddie Mac allow lenders to provide homeownership to people who meet lower levels of risk than loans to poorly-credit-performance home buyers and borrowers.” In other words, GSE sets the quality standards that lenders must meet to sell their loans and provides the lowest risky loans in these markets. They are also the most notable type of loan. Fannie and Freddie are involved in about 70% of the mortgage market today.
Another role Fannie May and Freddie Mac play is to help stabilize the mortgage market during difficult times. They do this in part by continuing to buy loans and providing capital when institutional investors may be withdrawing from the market. They also harness their status as GSEs by using the federal government as a kind of safety net. Holding or bound by securities by Fannie and Freddie, with express government guarantees, it is a virtually risk-free opportunity for investors.
Ironically, what led to government guardians in the first place is this role – stabilizing the market during tough times.
Government Parent: How did you get here?
Under the reserve, individuals or entities are appointed to establish oversight of problematic companies to bring them back to health. In this case, FHFA became GSES guardians in September 2008, essentially putting both companies under government control.
The state of the housing market, where home prices have plummeted and millions of homes are seized, helps explain why Fannie Mae and Freddie Mac have taken over. Fannie Mae reported nearly $59 billion in 2008, while Freddie Mac lost more than $50 billion.
Fear of these losses, as well as higher potential losses in the future, effectively bankrupted GSES. Therefore, the government has intervened in following the FHFA in “preserving and preserving assets and property and restoring them to sound and solvent state so that they can continue to carry out their statutory duties.”
As home prices recovered – at first slowly, and dramatically during the post-Covid boom – the GSE actually became a solvent again as foreclosure activity plummeted. They were then very profitable. Fannie May reported net profit of $3.7 billion in the first quarter of 2025 alone, with total net worth over $98 billion, while Freddie Mac reported $2.8 billion and net worth $62 billion.
This raises the question: Do entities still have to be guardians? Or is it time to release them and become a private company again?
Pros and cons of releasing GSE from parents
Despite the rate fluctuations, the mortgage market, particularly loans protected by Fannie Mae and Freddie Mac, have enjoyed a stable period since the Great Recession was over. Delinquency and foreclosure rates are below historic averages, with eligible borrowers easily accessing loans and no capital shortage available to lenders. So why is there a risk of releasing GSE and upsetting your Apple Cart?
Delgado believes the driving force is the Trump administration’s desire to reduce federal responsibility.
“They want to reduce some of the debt the government has, especially in housing,” Delgado said, adding that the release of GSE “will lead to increased competition. Technology delivery can be better utilized, developed and explored.
Business can do a lot of great things government businesses can’t do because government businesses are too bureaucratic.
– Ed Delgado
Managing Director of Mortgage Policy Advisor
Chris Whalen, CEO of Whalen Global Advisors, believes Trump’s motivations have something to do with the “big and beautiful bill.”
“Donald Trump wants to cut taxes,” says Whaleen. “He wants to institutionalize the previous tax cuts. He wants to give him a little more money. It could increase $2 trillion, and as a way to release Fannie and Freddie, as a way to collect cash to pay it, if they can go out and quickly grow $300, $40 billion.
These are some powerful arguments. So, what’s the catch?
“If you release GSE from parents and privatize it, you can see that mortgage rates will rise,” says Ivinson. Investors want to be compensated for the higher risk they are taking in investments that the government doesn’t support.
“Investors want a bigger return on their investment, which will lead to higher fees for consumers,” Ivinson says.
Based on today’s rate, Whalen said, “We’re seeing even more of a decline in home sales going to 7.5%. There’s even less refinance activity than today. So there’s a double barrel hit for home and mortgage.”
It would be a double barrel hit for homes and mortgages.
– Chris Warren
CEO, Whalen Global Advisors
Delgado is also worried that the GSE will lose the stability that has helped reestablish the reserve since its inception.
“My biggest fear is the repetition of 2008,” Delgado says. “Unless you establish clear guidelines and liability (rules, regulatory, enforceable policies), you can regain elements of greed and risky practice.
Additionally, mortgages can be more challenging for first-time buyers or borrowers with boundary credit scores.
“Part of the advantage of having the federal government involved is that they want to advocate for homeownership,” Ivinson says. “They want to make sure homeowners aren’t just for people with full credit. The private market looks at it from a pure risk perspective and says, “Let’s get rid of these low-Fico borrowers, because these create all our risks and defaults.”
Are they, or will they?
Industry insiders are unclear whether ending GSE reserves is a truly high priority for many other urgent concerns. But there’s a broad consensus that doing something with Fannie Mae and Freddie Mac has such an oversized impact on the mortgage market, so there’s a wide range of consensus that you have to be careful.
The transition to the post-preservation era must be done in the right way with a sufficient timeline.
– Bob Brockts
President and CEO of the Mortgage Banks Association
Bob Broeksmit, president and CEO of the Mortgage Bankers Association, summed up in a concise way. “GSE is essential for homeowners and rental homes, and the transition to a post-conservative era must be done in the right way with a sufficient timeline. Consumers.”
