Fannie Mae

The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, or Fannie, is a United States government-sponsored enterprise (GSE). It was founded in 1938 during the Great Depression as part of the New Deal, and “went public” in 1968. Fannie’s purpose, back then and now, is to expand the secondary mortgage market by securitizing mortgage loans in the form of mortgage-backed securities (MBS). This allows lenders to reinvest their assets into more lending, in effect increasing the number of lenders in the mortgage market.

Fannie’s website states, “We enable 30-year fixed-rate mortgages that give homeowners stable monthly payments and the option to prepay at any time. This ‘American Mortgage’ has become the standard, helping millions achieve the American dream of homeownership.”

Freddie Mac

The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, or Freddie, is similar to Fannie. It is a publicly traded government-sponsored enterprise (GSE) created in 1970 to expand the secondary market for mortgages in the U.S. Freddie Mac buys mortgages, pools them, and sells them as a mortgage-backed security (MBS) to private investors on the open market. Congress established Freddie in 1970 to provide competition for Fannie Mae and to further increase the availability of funds to finance mortgages and homeownership. Freddie Mac’s mission statement clarifies its overarching goal: “We serve America's homebuyers, homeowners, and renters by providing liquidity, stability, and affordability to the housing market.”

The Primary and Secondary Markets

This secondary mortgage market increases the supply of money available for mortgage lending and increases the money available for new home purchases. Both companies make money by charging a guarantee fee on loans that they purchase and securitize into mortgage-backed security (MBS) bonds. Freddie and Fannie keep this fee in exchange for assuming credit risk; both guarantee that the principal and interest on the underlying loan will be paid back regardless of whether the borrower actually repays.

In the primary markets, Fannie and Freddie’s underwriting software (DU and LP, respectively) set standards for evaluating borrowers. And while underwriting is important, the 30-year amortizing loan (not found in other countries) attributes much of its acceptance to Fannie Mae and then Freddie Mac. Balloon loans were popular prior to the Agencies, although the FHA (Federal Housing Agency) is credited with extending loan maturities. For much of the 1930s–1950s, the 15-year mortgage was the go-to option for many homebuyers. But as rates crept higher, homebuyers appreciated the lower monthly payments that the 30-year model provided. Fannie Mae and Freddie Mac, through buying and guaranteeing “conventional” mortgages, greatly reduced the risk held by lenders and provided incentives to help lenders help borrowers. Both continue to target first-time homebuyers and those in diverse borrower segments.

Recent Changes

Until recently, nothing has been mentioned regarding changing the basic business model of either company. But in the second half of March, abrupt changes were made. Structurally, then-newly appointed Federal Housing Finance Agency (FHFA) Director Bill Pulte implemented substantial changes within the GSEs. On March 17, 2025, Pulte removed 14 board members from both Fannie Mae and Freddie Mac, appointing himself as chairman of both boards. This move consolidates his control over the GSEs and aligns with the administration’s objectives to reform these entities.

Following these board changes, Pulte initiated a series of staffing adjustments within the FHFA. Over 10 percent of the agency’s staff have been dismissed so far, particularly those involved in “non-statutory” roles, including research and statistics teams. Reports suggest that Pulte plans to introduce over 20 political appointees to fill these vacancies. Additionally, FHFA employees have been directed to return to office settings, indicating a shift in workplace policies.

At Freddie Mac, Michael T. Hutchins was appointed as interim CEO following the termination of former CEO Diana Reid by Director Pulte. Hutchins, who has served as Freddie Mac’s president since 2020, brings extensive experience from his previous roles at UBS and Salomon Brothers.

The Conservatorship Question

There has been a lot of talk about “privatizing” Freddie and Fannie, more specifically removing them from being in a conservatorship position in which they’ve been since September of 2008. Yes, discussions regarding the privatization of Fannie Mae and Freddie Mac have gained momentum. In January 2025, federal agencies outlined a framework for the “orderly” release of these entities from conservatorship, a status they have held since the 2008 financial crisis. This proposal aims to transition the GSEs back to private control while ensuring stability in the housing finance system.

Billionaire investor Bill Ackman has re-engaged in activist investing, leveraging his social media influence to advocate for the privatization of the GSEs. Ackman proposes a government exit strategy that could benefit shareholders, including himself, and addresses the administration’s desire to reduce federal involvement in the housing market. 

The Work Ahead

All of these developments indicate a significant shift in the governance and strategic direction of Fannie Mae and Freddie Mac, reflecting broader efforts to reform the U.S. housing finance system. But the details of any plan to release the GSEs from government control are complicated, given liquidation preferences, credit risk transfer instruments, and corporate credit ratings. The result has been a quagmire and a continuation of government ownership for much longer than originally intended.

But nearly everybody in the current Administration likes the idea of releasing the GSEs, in theory. Housing experts argue such a change, especially done in a haphazard way, could increase mortgage rates further in an already volatile market. Yes, critics are worried about the influence that Bill Ackman has over Donald Trump and how it may impact millions of homeowners and future borrowers. All agree that changes can’t be done with the wave of a wand and will take years of hard work and consideration. The industry, and borrowers, hope that any changes do not impact their role in financing homes for Americans.