The Treasury Department’s quest for housing finance reform has been going on for over 15 years. Numerous white papers, one failed legislative effort, and hundreds of roundtables, reports, and committee hearings later, Fannie Mae and Freddie Mac (the Enterprises) remain under the control of the U.S. government. The quest to design a new housing finance system better than the one we have has been like searching for a mythical Camelot. Some of these efforts have been noble quests; others more akin to Monte Python and the Holy Grail. So, it’s reasonable that many housing experts have been skeptical that Fannie Mae and Freddie Mac will ever leave conservatorship.
This time, however, there are significant differences that could result in a resolution. The first is that seventeen years after the Enterprises were placed into conservatorship, housing stakeholders and policymakers are increasingly comfortable with the idea that much housing finance reform was achieved in the Housing and Economic Recovery Act (HERA) in 2008. That doesn’t mean that significant reforms aren’t still needed or widely desired. Congress has a critical role in this initiative, but it doesn’t have to lead the way. It is much more realistic for the Trump Administration to begin the process by establishing the value of the companies through an initial offering, possibly a convertible bond, finalize all of the reforms that can be completed administratively, and then have Congress evaluate the effort and legislate those elements that remain.
Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and Federal Housing Finance Agency (FHFA) Director Bill Pulte have begun work on the first leg of this journey: establishing a market valuation of the taxpayer’s interest in the companies through a public offering, possibly with the sale of convertible bonds or a small part of the Treasury’s warrants. Several prominent meetings with the country’s largest investment banks have already taken place on how to structure and execute such a sale as soon as the end of the year, though more likely the first half of 2026.
President Trump has insisted, however, that this does not mean the Enterprises will be released from conservatorship. In a Truth Social Post, he declared “I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President.” In keeping with the rapid pace, the Trump Administration has attacked so many of its major priorities this year, it has held at least eight high level meetings with over 65 major stakeholders in less than a month. These included meetings with federal and state chartered banks, independent mortgage banks (IMBs), multifamily investors, institutional investors, trade associations, advocates, civil rights leaders, and think tanks. The ideological span has been unprecedented, including the American Enterprise Institute and Cato Institute on the right, to the National Low Income Housing Coalition and National Fair Housing Alliance on the left, and everyone in between. Business interests have spanned from the largest commercial banks and IMBs to representatives of small community banks and Community Development Financial Institutions. Collectively, their testimony provided a mosaic of market expectations, technical realities, and economic and political priorities.
The Administration’s focus has been to define what elements of the housing finance system provide the most essential value, why it matters, and how unintended consequences could threaten the market for Mortgage Backed Securities or increase mortgage rates. Treasury’s process has been intentionally iterative. Early questions have been adjusted to address new information in previous meetings.
Issues around housing affordability and affordable housing goals, as well as Duty to Serve requirements and funding of the Capital Magnet Fund, Housing Trust Fund, and pre- and post-closing counseling were also discussed. One important point regarding lender exposure to Fair Housing Act enforcement was particularly noteworthy, as it has been discussed with great concern for months by lenders and servicers.
Just because the administration repeals certain fair housing regulations, or stops reporting on performance by race, doesn’t eliminate the exposure by lenders to future enforcement actions under the Fair Housing Act, the Equal Credit Opportunity Act, Community Reinvestment Act and the False Claims Act. Without regulatory supervision and industry-wide data, lenders and servicers are actually more exposed to legal action, not less. Programs like Special Purpose Credit Programs (SPCPs), developed collaboratively between lenders, the Enterprises and affordable housing advocates, help lenders expand markets and grow their business, especially when refinance volumes wane. Forbidding them is not just bad policy. It’s bad for business.
Nearly all stakeholders stressed the importance of preserving the 30-year fixed-rate mortgage – a long term, fully amortizing, fixed-rate mortgage with the option of locking in an interest rate in advance, available in all markets at all times regardless of economic conditions, to all qualified lenders regardless of size, and prepayable by the consumer with penalty. The TBA (To-Be-Announced) market was acknowledged as the skeletal system upon which mortgage market’s liquidity and flexibility is constructed. Any disruption to the TBA market would threaten not just buyers but the reliability of hedging, trading, and pricing for lenders of every size.
That means that the basic infrastructure of the mortgage finance system has to remain in place, starting with two competing Enterprises and an implicit guarantee that the Enterprises will pay timely payment of principal and interest on their Mortgage Backed Securities. Combining Fannie Mae and Freddie Mac would be the most destabilizing action that could be taken, nearly every single participant agreed. It is not at all clear how to ensure that investors will treat an implicit guarantee with the same certainty as they did before conservatorship. If they don’t, the spread between the 10 year Treasury and the 30 year fixed rate mortgages securitized by Fannie Mae and Freddie Mac will widen and mortgage interest rates will rise. It’s unclear how high they could go but it’s a reasonably conservative estimate that it would be at least 100 basis points.
Several factors help ensure that spreads remain stable. One of them is the President’s declaration that “the U.S. Government will keep its implicit GUARANTEES.” Improved capital held by the Enterprises is also an important part of any strategy to move out of conservatorship. So is retaining important regulatory powers held by FHFA only under conservatorship. A new amendment to the PSPA agreement between the Enterprises and the Treasury Department can ensure that these powers are maintained. It should include prohibitions against the market share wars that led to a race to the bottom, first over guarantee fees and later over loose credit standards, and restrictions on the size and use of the Enterprises portfolios.
Primary Mortgage Insurance (PMI) and the Credit Risk Transfer (CRT) mechanism ensure private capital is in a first-loss position before the taxpayer. The PMI market is highly competitive, and much stronger as a result of Private Mortgage Insurer Eligibility Requirements (PMIERs), which successfully enhanced the resiliency of the PMI industry. Rather than regulate MIs directly through a Federal agency, they are effectively supervised through the Enterprises under counterpart risk management. When Freddie Mac’s securities began prepaying at faster speeds than Fannie Mae’s, it created unhealthy uncertainty and price instability. The Common Securitization Platform (CSP) and Uniform Mortgage Backed Security (UMBS) stabilized the market. Stakeholders were clear these reforms, adopted during the first Trump Administration, must live beyond conservatorship. How to preserve these changes will have to be fully resolved.
While these changes don’t have to be made before a public offering of stock or convertible bonds, they will be expected once the process has begun and must be complete before release from conservatorship. This is part of the work of Treasury staff that has been informed by meeting with such a broad group of market participants.
Seventeen years of the quest for a perfect mortgage finance system may finally be over. Instead, the Trump administration has an opportunity to move forward. “Leaving Fannie and Freddie in conservatorship forever means we’ve nationalized the mortgage market by default,” I noted, echoing a growing frustration. A broad group of stakeholders agree that intentional reform—grounded in market stability, robust regulation, and continued innovation—offers a more sustainable course.
Momentum is real, consensus on the most vital pieces exists, and the pretense that “doing nothing” is risk-free has largely dissolved. Instead of continuing our quest for a mythical Camelot of housing finance, we can acknowledge that we may have been standing in front of it all along. Some important renovations are needed, but there’s no need to tear it down and go looking for a new one.