For the first time in years, the federal government appears ready to act on the long-running conservatorship of Fannie Mae and Freddie Mac. Now in its 18th year, that oversight could soon give way to major reform. Among the ideas circulating is the possibility of merging the two mortgage giants into a single entity or placing them under a common holding company.
The notion is not new. The Obama administration explored a similar idea more than a decade ago, but ultimately rejected it. Industry experts say the reasoning then remains just as such of a concern today, purporting that keeping the two government-sponsored enterprises, or GSEs, separate is essential to a healthy and competitive housing finance system.
Robert D. Broeksmit, CMB, President and CEO of the Mortgage Bankers Association (MBA), recently authored a blog examining the privatization of Fannie Mae and Freddie Mac, and ramifications of such a move.
The Danger of a Merger
Fannie Mae and Freddie Mac were never meant to be monopolies. Their parallel presence has helped ensure liquidity and stability in the mortgage market by giving lenders options. Critics of consolidation warn that rolling them into one would eliminate the incentive to innovate, weaken service for lenders, and concentrate too much risk in one unified organization.
Even under conservatorship, the GSEs have been restricted in how much they can compete or modernize. Industry insiders often have dubbed this as the “HUDification” of the enterprises, a slow erosion of their entrepreneurial edge. A merger, they argue, would only make matters worse.
The Perks of Competition
The benefits of maintaining two GSEs are visible across the mortgage market. Competition has driven both Fannie and Freddie to develop diverse technology tools that make lender interactions smoother. It has also spurred them to pioneer different risk-sharing structures in the multifamily sector, refine how they enforce lender representations and warranties, and offer specialized products for condominiums, manufactured housing, and renovation loans.
These parallel approaches expand access to sustainable mortgage credit and ensure strong customer service for lenders of all sizes. Those advantages trickle down to homebuyers and taxpayers, reinforcing the stability and resilience of the U.S. housing system.
Where Alignment Helps
That does not mean Fannie and Freddie should never align. Standardization in areas like servicing practices, loan documentation, appraisals, and the uniform mortgage-backed security has improved efficiency and fairness. Consistent oversight from their regulator also helps maintain equal access to the secondary market. But these forms of alignment work best when layered on top of healthy competition, not instead of it.
Looking Ahead
Conservatorship was always supposed to be temporary. With the administration now signaling a serious push for reform, policymakers face a pivotal opportunity to end the current arrangement, preserve safeguards, and strengthen what works best in the housing system.
