Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) created to ensure liquidity, stability, and affordability in the U.S. mortgage market. Rather than issuing loans directly, they buy mortgages from lenders, package them into mortgage-backed securities (MBS), and guarantee timely payments to investors—effectively de-risking the housing credit market. This role is foundational: together, Fannie and Freddie back close to half of the nation’s $12 trillion mortgage debt, making them central players in U.S. housing finance. Their support enables lenders to offer 30-year fixed-rate mortgages and provide credit to a broad swath of borrowers at relatively low rates.
However, in September 2008, as the global financial crisis intensified, both entities faced mounting losses tied to deteriorating loan performance and risky investments in private-label MBS. With their capital depleted and investor confidence evaporating, the federal government stepped in. Under authority granted by the Housing and Economic Recovery Act (HERA), the Federal Housing Finance Agency (FHFA) placed both GSEs into conservatorship. The Treasury committed nearly $200 billion in capital support, and in return, received senior preferred shares with sweeping control over the companies' operations and cash flows.
What was originally intended as a temporary emergency measure has now stretched into a 17-year conservatorship. During this time, the GSEs have operated under strict oversight, with their profits largely diverted to the U.S. Treasury. Their underwriting has tightened, their capital buffers have slowly rebuilt, and they have consistently met affordable housing goals imposed by FHFA. Despite functioning reliably as key market stabilizers and providing over $300 billion in dividends back to taxpayers, Fannie and Freddie have remained in legal and political limbo—neither fully public nor fully private.
The 17-year conservatorship and 2025 push for privatization
The question of their long-term status, structure, and mission has remained unresolved, resurfacing sharply in 2025 as renewed calls emerge to release them from conservatorship and privatize their operations. The discussion has gained momentum alongside a broader debate about reducing government involvement in housing finance. Notably, the new administration has revived plans to privatize the GSEs, aiming to curb taxpayer risk and expand private-sector roles. After 17 years of federal control, supporters of “releasing” Fannie and Freddie argue that both companies are financially stronger and could thrive as private entities. Former FHFA Director Mark Calabria contends they’re sound enough to operate outside government control and suggests concerns about soaring mortgage rates may be overblown. However, many experts and housing advocates urge caution. They note that ending the conservatorship could fundamentally reshape mortgage costs and credit access, with significant ripple effects on homeownership and rentals. The mere prospect of an exit has prompted questions about how to balance reform with economic stability, as regulators walk a tightrope between fiscal change and housing market health.
Mortgage rates, private mortgage insurance, and access to credit after release
A key concern is how privatization might influence mortgage rates and lending standards. Without explicit government backing, investors would view Fannie/Freddie-backed loans and securities as carrying higher risk. To compensate, they would likely demand higher returns – meaning higher mortgage interest rates for borrowers. In fact, one analysis estimates that removing the government guarantee would require Fannie and Freddie to hold much more capital, which could push average mortgage rates up by roughly 0.5 to 1 percentage point. That increase (around $700–$1,700 extra per year for a typical borrower) could price many Americans out of homeownership. Higher borrowing costs, combined with potentially tighter underwriting, would hit first-time and moderate-credit homebuyers hardest. In a market where affordability is already strained, the added cost burden could disqualify many from buying a home.
Private mortgage insurance (PMI) also comes into play. PMI is required on many loans with down payments under 20%, and it protects lenders (and the GSEs) against borrower default. If Fannie and Freddie exit conservatorship, PMI could become even more critical in sharing risk with the private market. Analysts suggest that PMI companies might need to hold more capital and take on deeper coverage to backstop high-LTV mortgages once the GSEs lose their implicit government guarantee. In other words, more of the loan’s risk would be insured by private companies. This could raise PMI premiums or make it harder to obtain for riskier borrowers, further tightening credit for low- to moderate-income buyers. Fannie and Freddie might also be less willing (or allowed) to pursue aggressive affordable housing goals, especially if profit-driven mandates take priority. Some worry that a retreat from loans deemed “less profitable” would cut into support for affordable housing projects, an area that has been a cornerstone of the GSEs’ mission under conservatorship.
As mortgage costs rise many prospective homebuyers would find themselves priced out of ownership. PMI exists to protect mortgage lenders when borrowers have high loan-to-value (LTV) ratios, typically exceeding 80%, often signaling thinner credit files or limited savings for down payments. This demographic closely mirrors the core customer base we serve at TheGuarantors: renters who face structural barriers to approval. In that sense, TG is often seen as the "rental market analog" to PMI. While PMI protects lenders, our product protects landlords, enabling them to extend leases to tenants with higher risk profiles by mitigating default exposure. As affordability deteriorates for would-be homeowners, it's this cohort—already financially stretched—that is disproportionately affected and increasingly diverted back into the rental market.
From homebuying hurdles to rising rental demand
If mortgages become more expensive and harder to obtain, many aspiring homeowners will remain renters—often far longer than they originally planned. Elevated interest rates and tighter lending standards in 2025 have already kept more would-be buyers in the rental market. A privatized Fannie Mae and Freddie Mac would likely deepen this trend, as stricter underwriting and the rollback of affordable housing mandates reduce access to homeownership for lower-income and moderate-credit households.
Instead of transitioning into starter homes, these households will continue renting apartments or single-family homes, increasing competition for existing units. While landlords may benefit from larger applicant pools and stronger pricing power, this demand surge raises affordability concerns. In supply-constrained markets, displaced homebuyers competing with existing renters could further inflate rents, putting additional pressure on lower-income households.
There’s also a structural feedback loop to consider. Fannie and Freddie don’t just back home mortgages—they are also critical sources of financing for multifamily rental housing. If a post-conservatorship business model shifts away from mission-driven lending, fewer affordable developments may be financed, and refinancing could become more expensive. Both effects would tighten rental supply and exacerbate upward rent pressures. Policymakers have acknowledged these risks, with some advocating for updated affordability mandates or new federal supports to stabilize access to housing.
As of mid-2025, rents remain well above pre-pandemic levels. According to Apartment List, the national median rent in May was $1,398—22% higher than in January 2021. While vacancy rates have increased slightly to 7%, baseline rent levels remain elevated. A GSE exit that further restricts mortgage access would push more creditworthy individuals back into the rental pool, intensifying demand for already limited inventory.
This crowding effect could disadvantage renters with lower credit or less financial flexibility. As more high-income, high-FICO applicants re-enter the rental market, landlords may tighten screening standards or increase deposits and lease requirements, limiting access for vulnerable tenants and increasing turnover and payment risk—especially if rents continue rising faster than incomes.
From our vantage point at TheGuarantors, these dynamics are already reshaping rental market behavior. With multifamily construction slowing sharply compared to a year ago, demand from displaced homebuyers now overlaps with that of traditional renters, putting upward pressure on approval standards. Over the last 12 months, we observed a loosening of screening criteria as leasing velocity slowed and landlords became more flexible. But that trend may reverse quickly as application volume rebounds. Notably, the households who may be priced out of homeownership as a consequence of the lifting of conservatorship typically carry FICO scores in the mid- to high-600s—significantly higher than the average U.S. renter, whose FICO is more often in the low- to mid-600s. As these more creditworthy renters re-enter the market, TG’s role in expanding landlord confidence—while ensuring that applicants across the credit spectrum have equitable access—becomes even more essential.
Real-world implications for renters and landlords
Ultimately, the release of Fannie Mae and Freddie Mac from government control would mark a historic shift in U.S. housing finance – one with complex, real-world implications. For potential homebuyers, it could mean higher borrowing costs and tougher access to mortgages, pushing some dreams of ownership further out of reach. For the rental market, those same pressures point to greater demand for rental housing, as more people remain renters by necessity. In the short term, higher rental demand (especially from creditworthy individuals who simply can’t buy a home) can strengthen landlords’ positions and bolster rent growth. However, it may also strain affordable rental supply and put upward pressure on rents across the board. Lower-income families could bear the brunt if both home prices and rent costs keep climbing.
As the debate over privatizing Fannie and Freddie unfolds, observers emphasize the need for balance. Ensuring sufficient credit access for homebuyers while preventing a spike in rent burdens will be a delicate task for regulators. Any transition away from the 17-year conservatorship will likely be gradual and closely managed, precisely to avoid a shock that cascades from the mortgage market into the rental sector. In the end, what happens with these GSEs is not just a Wall Street or Washington story – it’s a Main Street story. It will influence whether millions of Americans can buy homes or must rent, and under what terms. As housing finance reforms take shape in 2025, both renters and landlords are watching closely, knowing that changes to homebuying affordability inevitably flow through to the rental market in which so many participate.
Sources
Ramamurti, Bharat. Seven Key Questions About the Potential Release of Fannie Mae and Freddie Mac from Government Conservatorship, May 2025.
FHFA. Conservatorship of Fannie Mae and Freddie Mac. https://www.fhfa.gov/conservatorship
Urban Institute. How to Think About Fannie Mae and Freddie Mac’s Pricing, 2023.
FHFA. 2023 Guarantee Fee Report. https://www.fhfa.gov/DataTools/Downloads/Pages/Single-Family-Guarantee-Fee.aspx
FHFA. 2025-2027 Housing Goals for the Enterprises. https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Finalizes-2025-2027-Housing-Goals.aspx
CNBC. The End of Fannie Mae and Freddie Mac’s Government Conservatorship, Feb 2025. https://www.cnbc.com/2025/02/19/the-end-of-fannie-mae-and-freddie-macs-government-conservatorship.html
HousingWire. Trump Says He’s Giving Serious Consideration to Releasing Fannie Mae, Freddie Mac, Feb 2025. https://www.housingwire.com/articles/trump-says-hes-giving-serious-consideration-to-releasing-fannie-mae-freddie-mac/
New York University Furman Center. The GSE Conservatorships: Fifteen Years Old with No End in Sight, 2023. https://furmancenter.org/thestoop/entry/the-gse-conservatorships-fifteen-years-old-with-no-end-in-sight
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Apartment List. National Rent Report: May 2025. https://www.apartmentlist.com/research/national-rent-data
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