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A risk to manage when releasing Fannie Mae and Freddie Mac from conservatorship is the “race to the bottom” that led to the 2008 financial crisis, according to a new paper published by the National Housing Conference (NHC).
Following consultations with more than 100 leading policy experts and stakeholders, the NHC on Tuesday released a proposal that outlines a path for privatizing the government-sponsored enterprises (GSEs).
“After 16 years of limbo, the time has come to move beyond conservatorship with a transparent, thoughtful and nonpartisan plan that addresses the remaining systemic flaws while preserving the vital mission of ensuring access to mortgage credit across the country,” David Dworkin, the NHC’s president and CEO, said in a statement.
The plan includes preserving the Federal Housing Finance Agency (FHFA)’s authority to manage guarantee fees — costs paid by lenders in exchange for mortgage guarantees — “within a narrow range” to ensure the GSEs compete on performance rather than pricing tied to market share agreements.
“This is essential to averting the ‘race to the bottom’ that ultimately drove down credit standards during the run-up to the financial crisis of 2008,” the paper stated.
The NHC also emphasized the need to restructure the GSEs’ boards to ensure professional, independent governance.
Recent posts by President Donald Trump on Truth Social raised the possibility of releasing the GSEs.
On May 21, Trump said he was giving “serious consideration” to doing so. And on May 27, he said the federal government would continue to provide an implicit guarantee. FHFA Director Bill Pulte has stated publicly that any decision to end the conservatorships would be up to the president.
The NHC argues that the current conservatorship leaves the mortgage market — comprised of $12.8 trillion in single-family mortgages and $2.3 trillion in multifamily loans — vulnerable to political interference and uncertainty.
But a reform calls for an amendment to the U.S. Department of the Treasury’s Preferred Stock Purchase Agreements (PSPAs) with Fannie and Freddie, a recapitalization and an administrative release — steps designed to preserve affordable housing mandates and maintain market liquidity.
“Without action, we are effectively choosing, in perpetuity, a nationalized housing finance model that operates as a utility with full government control and taxpayer risk in an increasingly politicized environment,” the NHC wrote.
According to the organization, nothing about an administrative release from conservatorship would preclude further action by Congress.
The NHC supports dedicating any proceeds from a sale of the Treasury’s stake in the enterprises to affordable housing priorities. But it also acknowledges that redirecting funds from a deficit reduction would require amendments to the Dodd-Frank Act — a step only Congress can take.
