Privatizing FNMA and FHLMC

Written By: Bonnie Wilt-Hild

Earlier this week, someone asked my opinion as to if I thought there was any benefit in privatizing the GSE’s. Unfortunately, I was a little short on time and couldn’t go into a great length as to if I thought it desirable or not and honestly up until the conversation occurred, I hadn’t really given it a lot of thought. End result, I started thinking about the feasibility of such a thing and have decided not only is it not remotely feasible but would be disastrous, particularly to the already underserved segments of the population. How so you ask?

First, it is important to recognize that as a GSE, Fannie Mae and Freddie Mac serve a vital public purpose as outlined in their federal charters. Under these charters, these GSE’s have provided for not only mortgage market stability and liquidity by providing funds for conventional mortgage lending but also improved access to mortgage credit for low and moderate income families as well as other underserved market areas in a market where a significant number of prospective homeowners remain underserved. In short, privatization, in my opinion, would undermine the federally mandated goals these agencies were designed to meet.

While we are on the subject, let’s start with the low to moderate income borrowers as well as the other underserved populations and the impact that privatization would have on these groups. By removing what most would consider an implicit guarantee by the federal government, it is extremely likely that interest rates would increase as the cost of borrowing, typically lower for the GSE’s would likely increase. This would have a huge impact on affordable lending initiatives and increasing homeownership opportunities for underserved segments of the population. Additionally, removing federally mandated goals for these agencies would allow for significant credit overlays, competition in the market by nonconforming loans which would then be able to compete in the conforming markets as well as encourage disparate practices among lending institutions.

The next and most important consideration would be liquidity in the mortgage market. As Fannie Mae and Freddie Mac have operated efficiently in the secondary market since the 1970’s, they have provided a stable source of liquidity for mortgage credit markets. As a result, lending was not limited to banks and large financial institutions that had the ability to portfolio home mortgages made to consumers. By providing this liquidity, credit has been made more accessible to American consumers, underwriting and qualifying guidelines are consistent and fair, eliminating disparate practices and lenders, brokers and other potential sources of mortgage money can now participate in lending, which allows the consumer more options when selecting a mortgage provider. By eliminating this function of the GSE’s the mortgage market would again become a local one, with consumers turning to local banks or thrifts for mortgage financing.

These considerations are just the beginning and as you can imagine, there are several other implications to consider when thinking about privatization of the GSE’s. In closing I will say that I agree that have been some strong arguments for privatization but in the end, the arguments against are just more plausible. That’s it, that’s my opinion. As always, have a great week.

About The Author

Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University ( as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at:

Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.