Risks of Privatization of Fannie Mae and Freddie Mac
UCLA Luskin Professor Wesley Yin wrote a Fortune op-ed titled “Privatizing Fannie Mae and Freddie Mac the wrong way risks a second Great Recession.”
Fannie Mae and Freddie Mac are government-sponsored enterprises that play a major role in the U.S. housing market by purchasing qualifying mortgages from lenders and bundling them into mortgage-backed securities, helping keep borrowing costs lower and credit accessible for homebuyers. The Trump administration has signaled that reprivatization could begin as early as the second quarter of 2026.
Yin, a professor of public policy at UCLA Luskin with a joint appointment at the UCLA Anderson School of Management, warns that the current approach lacks transparency and could dismantle critical safeguards established after the 2008 financial crisis. “A hasty insider-driven IPO and exit from conservatorship will erode the safeguards that have kept the housing market stable, exacerbate systemic risks, and primarily enrich shareholders,” he says. “Such a move would align with the Administration’s agenda of rolling back other financial regulations and oversight.”
Rather than improving affordability, Yin argues that it would instead benefit wealthy investors and increase borrowing costs, potentially encouraging the type of risk-taking that contributed to the Great Recession.
An explicit government guarantee, paid for from a minor increase in G fees, is the only sound solution going forward. Such change would cause greater demand from institutions entering MBS market and thus offset premiums (insurance fees) by lower borrowing costs for F2. No private buyers should want to engage, at any reasonable price, without formal loan terms assuring property would not be confiscated as a result of draws on credit. The government was the only actor who benefited from ambiguity. Explicit (paid for) guarantee would’ve broadened MBS base and had little or positive effects on consumer affordability. Such change would’ve increased confidence in the enterprises durability for its equity base too, thereby making it relatively easier to raise credit during turbulence.
The move towards the release of the conservatorship is not hasty . That is the proper goal after many years of planing. The IPO is a very small step in that process.
Far more regular investors own this stock than do wealthy investors. It has been ruled in court that these investors have been harmed by being deprived of the benefit of this property. That ruling was done by judge Lambreith about 3 years ago.
I disagree with Professor Yin on his article.