Fannie Mae and Freddie Mac would need to operate differently from how they did prior to the 2008 financial crisis if they were released from their government conservatorship, Federal Reserve Bank of Atlanta President Raphael Bostic said Friday at an industry conference.
During the panel at the Atlanta Fed Friday afternoon — which was moderated by Bostic — housing policy experts said the obstacles in the way of releasing Fannie and Freddie are significant and the solutions to clearing those obstacles are complicated. While Fannie and Freddie have changed in the 17 years they’ve been overseen by the Federal Housing Finance Agency, the participants said ending the conservatorship raises questions about the government-sponsored enterprises’ balance sheets, stability and affordable housing mandates.
Former FHFA Director Ed DeMarco said during the conference that he thinks the conservatorship — which was implemented in 2008 when the federal government bailed out Fannie and Freddie amid the subprime mortgage crisis — shouldn’t be permanent.
“I was that federal conservator for four-and-a-half years,” DeMarco said. “Making decisions about the business strategies and so forth of these entities, doing it through a government mechanism — that’s not who we are, right? Our economy is a private capital economy.”
But, he added, he thinks that being in a conservatorship for as long as Freddie and Fannie have can weaken risk management and corporate governance capabilities. The GSEs, which back about half of the U.S. mortgage market, also still owe the Treasury some $340 billion, DeMarco said.
DeMarco also said capital requirements for the GSEs should be roughly aligned with those of commercial banks.
Scott Frame, senior vice president and deputy head of research at Bank Policy Institute, said that it would be preferable for any conclusion of the government conservatorship to come at the direction of Congress, but there’s little appetite among lawmakers to take up the thorny issue.
Janneke Ratcliffe, vice president for the housing and communities division at the Urban Institute, said that it seems that “something” could happen to the status of Fannie and Freddie in the current environment.
Some shareholders of the companies say they could see a major windfall in privatizing the entities again. Releasing the companies
“GSEs of today, even if they were reprivatized, are quite different in the way they operate than pre-conservatorship,” Ratcliffe said. “A difference in their capital structure, a difference in the way they make money, a difference in a much stronger regulatory infrastructure. And so reprivatization doesn’t necessarily mean going back to 2007.”
Ratcliffe added, though, that the form of Fannie and Freddie shouldn’t dominate over their designed functions. Fannie and Freddie are congressionally mandated to provide stability and assistance to the secondary mortgage market, including activities relating to housing for low- to moderate-income households, she said.
Still, government-sponsored entities’ structure has gotten some attention from recent Trump appointees.
Earlier this month, newly-minted FHFA Director Bill Pulte said
In a post on X, formerly known as Twitter, Pulte said that Fannie and Freddie have been underperforming “compared to where they should be” but said the government would “fix it.”
Last month, Treasury Secretary Scott Bessent said that the end of the conservatorship would depend on the potential outcomes for mortgage rates. Bessent had said