Seventeen years after being placed under government conservatorship, Fannie Mae and Freddie Mac remain both indispensable and politically untouchable. Together, the two government-sponsored enterprises (GSEs) underpin more than half of the U.S. mortgage market, generating billions in annual profits, yet continue to operate under federal control.
During an event hosted by the Columbia Business School Distinguished Speaker Series in partnership with the Paul Milstein Center for Real Estate, former Fannie Mae CEO Hugh Frater ’85 and former President David Benson joined Professor Brian Lancaster to explore one of the longest-running dilemmas in U.S. finance: what true privatization of the mortgage giants might look like—and whether it should happen at all.
The two industry veterans reflected on lessons from the 2008 financial crisis, the evolving political landscape, and the structural contradictions that keep Fannie Mae and Freddie Mac suspended between public mission and private ambition.
The Billion-Dollar Spectacle That Isn’t What It Seems
When talk of ending conservatorship surfaces in Washington, it is often wrapped in large numbers and public spectacle rather than serious structural reform. Frater and Benson focused on a recent example: a proposed $30 billion public offering that has attracted attention as a supposed step toward privatization.
In practice, such an offering would not represent true recapitalization, according to Frater and Benson. The companies would remain under government control, with no change to their balance sheets or regulatory capital. Instead, the transaction would merely convert a portion of the government’s ownership into cash—a maneuver that might generate headlines but would not move the enterprises closer to independence.
While Fannie Mae’s stock value has multiplied in recent years, its position has not changed. The company continues to operate as a highly profitable but tightly controlled government ward. A genuine path to privatization, both speakers noted, would likely require several years of deliberate coordination between the Treasury Department and the Federal Housing Finance Agency (FHFA), along with clear policy decisions about governance, capital, and oversight.
The problem, they argued, is that the national conversation has become more political than practical. The emphasis has shifted toward how the government might profit from its ownership stake rather than how the mortgage market could be made more stable, innovative, or equitable in the long run.
The Silence at the Heart of the Privatization Push
The deeper question, both leaders suggested, is not how to privatize Fannie Mae and Freddie Mac, but why. With the companies profitable, well-capitalized, and operationally sound, many policymakers have stopped articulating the underlying purpose of reform.
Benson noted that much of the discussion has focused narrowly on financial outcomes for the government rather than policy goals for housing. The conversation has largely sidestepped fundamental questions about affordability, access to credit, and the role these institutions should play in the housing ecosystem.
"They're going to be kind of formed on the basis of market principles. Whereas now the government really controls these entities lock, stock, and barrel and can define whatever they wish those outcomes to be. They don't really have to have a discussion with shareholders about what they intend, and that discussion doesn't seem to be there."
Frater maintained that prolonged government control comes at a cost. The longer the GSEs remain in conservatorship, the less room there is for innovation, agility, or private-sector talent. He noted that companies that could be privately managed and capitalized should not remain effectively nationalized. Market discipline, he argued, fosters efficiency and innovation, especially in an industry as systemically important as housing finance.
At the same time, Benson emphasized that the benefits of privatization must be weighed against public objectives. The GSEs were designed to balance market efficiency with broad access to mortgage credit, and that balance remains delicate. For him, the key policy question is whether housing goals like affordability, sustainability, and access for underserved borrowers are best advanced inside government oversight or within a privately owned but regulated framework.
Until the purpose of reform is clarified, efforts to “end conservatorship” risk becoming symbolic gestures rather than meaningful progress.
Fannie, Freddie, and the Homeownership Paradox
When the conversation turned to housing affordability, the discussion became more urgent. Both speakers agreed that the most serious challenge in U.S. housing today is not access to credit but the lack of available homes.
During the COVID-19 pandemic, Fannie Mae and Freddie Mac injected massive liquidity into the housing market, supporting homeowners through record-low interest rates and refinancing activity. While that intervention kept the market stable, it also had unintended consequences: it locked millions of borrowers into low-rate mortgages and drove housing prices sharply higher. The result is a market where credit is abundant but supply is constrained, leaving first-time buyers and younger households increasingly priced out.
Benson pointed to the long-term structural imbalance that began after the 2008 financial crisis, when new home construction lagged far behind household formation. The U.S., he noted, is short several million homes that simply were never built. This supply shortage, combined with population growth and restrictive zoning, continues to inflate prices despite rising mortgage rates.
Frater added that solving the affordability crisis will require federal coordination on a scale rarely seen in housing policy. He described the need for a national, cross-sector effort to streamline zoning, permitting, and regulation across states. He also observed that the regulatory complexity surrounding homebuilding has grown so much that the share of white-collar employees in the industry has tripled in two decades, driven largely by compliance demands rather than construction activity.
"If the government really wants to tackle housing supply issues, they need a Manhattan project for housing, and they need to get serious, and they need to get nasty," Frater said.
For both speakers, the implications were clear: boosting mortgage availability alone will not make housing more affordable. Without a significant expansion in housing supply, financial reforms risk perpetuating the same imbalance—stimulating demand in a market that has little capacity to meet it.