Reshaping Home Finance: The Future of Fannie Mae, Freddie Mac, and U.S. Mortgage Policy
The vast majority of residential mortgages in the United States are originated, underwritten, funded, and ultimately sold in accordance with the policies, procedures, and guidelines established by Fannie Mae and Freddie Mac. These two Government-Sponsored Enterprises (GSEs) play a foundational role in the mortgage industry, shaping how home financing is structured and made accessible to borrowers. Recent developments in late March concerning Fannie Mae, Freddie Mac, and their conservator, the Federal Housing Finance Agency (FHFA), have brought renewed attention to these entities and their broader role in the housing finance system. Given these changes, it is an opportune moment to revisit the history of these GSEs, their function, and how they have contributed to expanding homeownership in the United States.
Fannie Mae, officially the Federal National Mortgage Association (FNMA), was established in 1938 as part of the New Deal during the Great Depression. Originally created to provide liquidity to the mortgage market, Fannie Mae transitioned into a publicly traded company in 1968. Its core function is to expand the secondary mortgage market by securitizing home loans into mortgage-backed securities (MBS). This process allows lenders to replenish their funds, enabling continued lending and broadening the availability of mortgage financing. On its official website, Fannie Mae highlights its role in supporting the "American Mortgage," particularly the 30-year fixed-rate loan, which has provided borrowers with long-term payment stability and prepayment flexibility. This model has helped millions of Americans achieve homeownership by making financing more accessible and predictable.
Freddie Mac, or the Federal Home Loan Mortgage Corporation (FHLMC), was introduced in 1970 to complement Fannie Mae and increase competition within the secondary mortgage market. Like Fannie Mae, Freddie Mac purchases mortgages, pools them together, and sells them as mortgage-backed securities to private investors. The GSE was established by Congress to further improve liquidity in the mortgage sector and diversify funding sources for home loans. Freddie Mac states that its mission is to serve homebuyers, homeowners, and renters by ensuring liquidity, stability, and affordability in the housing market. The role of both institutions is crucial in facilitating the flow of capital into housing finance, ultimately increasing the supply of money available for new home purchases. Their business model relies on collecting a guarantee fee in exchange for assuming the credit risk on the loans they securitize—this fee ensures that investors receive principal and interest payments even if a borrower defaults.
Beyond their securitization activities, Fannie Mae and Freddie Mac influence mortgage lending through their proprietary underwriting systems—Desktop Underwriter (DU) for Fannie Mae and Loan Product Advisor (LP) for Freddie Mac. These automated systems set standardized criteria for evaluating borrowers, ensuring consistency and efficiency in the mortgage approval process. The widespread adoption of the 30-year fixed-rate mortgage in the U.S. can be attributed in large part to the GSEs, as they helped stabilize long-term financing options and reduce risks for lenders. Prior to their expansion, balloon loans were a common mortgage structure, but these often left borrowers vulnerable to refinancing risks. The Federal Housing Administration (FHA) played a role in extending mortgage maturities, but it was Fannie Mae and Freddie Mac that cemented the 30-year mortgage as a standard offering. The availability of these long-term, fully amortizing loans has significantly contributed to homeownership accessibility, particularly for first-time buyers and diverse borrower segments.
Despite their long standing role in housing finance, Fannie Mae and Freddie Mac have remained under government conservatorship since the 2008 financial crisis, raising ongoing debates about their future structure. As of late March 2025, however, major changes have been implemented under the leadership of newly appointed FHFA Director Bill Pulte. On March 17, Pulte took decisive action by removing 14 board members from both Fannie Mae and Freddie Mac, subsequently appointing himself as chairman of both boards. This unprecedented move consolidates his control over the GSEs and aligns with the administration’s broader objectives to reform the entities.
Beyond board restructuring, Pulte initiated a wave of personnel changes within the FHFA itself. Over 10 percent of the agency’s staff, particularly those in non-statutory roles such as research and statistical analysis, have been dismissed. Reports suggest that more than 20 political appointees will be brought in to fill these vacancies, signaling a shift in the agency’s strategic direction. Additionally, FHFA employees have been instructed to return to in-office work settings, marking a notable change in workplace policy.
The leadership shake-up extended to Freddie Mac’s executive ranks as well. Michael T. Hutchins was appointed interim CEO following the removal of former CEO Diana Reid. Hutchins, who has served as Freddie Mac’s president since 2020, brings extensive financial sector experience, having previously held positions at UBS and Salomon Brothers. His appointment suggests a continued focus on financial markets expertise within the GSEs’ leadership.
A major question surrounding these changes is whether they will accelerate the long-discussed privatization of Fannie Mae and Freddie Mac. Since their placement into conservatorship in September 2008, multiple administrations have debated the feasibility of releasing the GSEs back into private control. In January 2025, federal agencies outlined a framework for transitioning Fannie and Freddie out of government oversight while ensuring the stability of the housing finance system. This plan aims to gradually reduce federal involvement while maintaining market liquidity and minimizing disruptions to mortgage accessibility.
Billionaire investor Bill Ackman has also reentered the conversation, leveraging his social media influence to advocate for privatization. His proposals suggest a structured government exit strategy that could benefit shareholders, including himself, while aligning with broader policy efforts to reduce the federal government’s footprint in housing finance. Critics, however, express concern over Ackman’s potential influence on the Trump administration’s approach to mortgage policy, fearing that a poorly executed privatization could introduce instability into an already volatile market.
These developments underscore a pivotal shift in the governance and direction of Fannie Mae and Freddie Mac, reflecting broader attempts to reshape the U.S. housing finance system. However, the complexities of transitioning the GSEs out of conservatorship remain a significant hurdle. Issues such as liquidation preferences, credit risk transfer mechanisms, and corporate credit ratings all contribute to the prolonged uncertainty surrounding their future. While many in the current administration support the idea of privatization in principle, housing experts caution that any abrupt changes could push mortgage rates higher, further straining affordability for borrowers. The mortgage industry and prospective homeowners alike will be watching closely, hoping that any reforms preserve the essential role these institutions play in financing homeownership.