At the center of the housing industry is finance, and at the center of mortgage finance in the U.S. are two behemoths: the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These government‐sponsored enterprises (GSEs) are important players in the mortgage market. They purchase mortgages from lenders and package them as securities.
When the housing bubble burst in 2008, the government attempted to stabilize the housing market by injecting about $190 billion into these giants and by putting them under the conservatorship of the Federal Housing Finance Agency, where they reside today. In short, Fannie and Freddie were effectively nationalized.
In a departure from the Obama administration, the Trump administration allowed Fannie and Freddie to retain some of their earnings and to be recapitalized. Efforts to privatize Fannie and Freddie, however, remained incomplete as Trump left office. President Biden’s advisers have now indicated that they will not be in a rush to shrink the government’s role in housing and privatize the GSEs. Indeed, the notion that anything will be privatized under President Biden seems rather far‐fetched.
To make matters worse, the Biden administration might seek to mandate — as the Obama administration did — that nearly all of Fannie and Freddie’s profits be forked over to the government as dividend payments on its senior preferred shares. There is also drumbeat, in the name of “social justice,” about affordable housing that can be heard in the corridors of the White House.