In the debate over whether Fannie Mae and Freddie Mac should merge, the Mortgage Bankers Association (MBA) has remained consistent: “We don’t think that would be a good idea,” chief economist Mike Fratantoni said.
The trade group supports a stock offering that preserves stability in the secondary mortgage market while advocating for privatization with an explicit government guarantee, a clear separation between primary and secondary market activities, and the elimination of loan-level pricing adjustments (LLPAs).
Fratantoni’s comments come as the Trump administration signals potential plans to merge the government-sponsored enterprises (GSEs) and pursue a stock offering this year.
“There need to be at least two GSEs and we think competition in the secondary market is really beneficial for the system as a whole,” Fratantoni said in an interview with HousingWire.
While the two enterprises offer similar products and have maintained disciplined credit standards, Fratantoni noted that at different points during conservatorship, one or the other has served as a stronger partner to the primary market — an advantage that could be lost in a merger.
Proponents of combining the GSEs argue that past competition fueled excessive risk-taking in the early 2000s, contributing to the 2008 financial crisis. They also point to potential efficiency gains. Together, the two GSEs employ about 15,000 people, with 2024 general and administrative costs totaling $6.5 billion.
In response, Fratantoni countered that post-crisis reforms — including the Dodd-Frank Act‘s ability-to-repay and Qualified Mortgage rules — have addressed these risk concerns. In addition, before the crisis, the GSEs charged about 20 basis points in fees per loan. Today they charge 50 bps, reflecting stronger capital standards.
“The system as a whole is really as strong as it’s ever been. So, I understand the concern, but don’t think that’s really an issue right now the way it would have been 20 years ago,” Fratantoni said.
The GSEs already coordinate in areas where competition adds little value, such as the Uniform Mortgage-Backed Security (UMBS) and the To-Be-Announced (TBA) market, which together improve secondary market liquidity. Outside these areas, Fratantoni sees clear benefits in having two competitors.
Stock offering
The Trump administration is reportedly seeking to offer between 5% to 15% of the GSEs’ stock, with a combined valuation of roughly $500 billion, per a report from The Wall Street Journal.
To Fratantoni, selling shares without ceding meaningful control does not seem “appealing” to investors due to policy uncertainty. Meanwhile, the uncertainty on what these businesses will look like, the capital structure and the nature of the government’s role make it very difficult to arrive at any precision to a valuation at this point.
U.S. Treasury Secretary Scott Bessent and Federal Housing Finance Agency (FHFA) Director Bill Pulte have emphasized that the ultimate test of any reform will be stable mortgage rates and sustained market liquidity. But an explicit guarantee is still needed, Fratantoni added.
“There is an expectation that in the event something really bad happened, the government would step in because these were congressionally chartered companies with a critical housing mission,” Fratantoni said. “To some extent, that hasn’t changed. But we’ve always thought that it would be a much better outcome to have an explicit backstop.”
Fratantoni said an explicit guarantee would help ensure stability in the mortgage-backed securities market. Without it, assuming investors will react as they did before 2008 is “a big risk to take.”
Investors will closely watch required capital levels and guarantee fees; if they’re too high, business could shift to bank balance sheets, private-label securitization or the Federal Housing Administration (FHA). The MBA also wants bank regulators and the Securities and Exchange Commission (SEC) included in the discussion.
“I’m not an investment banker, but from what I understand, just doing this issuance by November, the investment banking side of that, perhaps that’s possible,” Fratantoni said. “But making sure you’re accounting for all these other perspectives and what the market impact would be, it’s tough to understand how they could do that by November.”
The MBA has long advocated for an explicit backstop, ending volume-based pricing discounts, and maintaining a clear separation between the GSEs’ secondary market activities and any primary market operations.
The FHFA’s role would also need to shift by relinquishing its conservatorship powers and focusing solely on regulation, with an emphasis on safety, soundness and mission oversight.
“For many years now, there’s been this intermingling between their conservator hat and their regulator hat,” Fratantoni said. “They would need to move back to that regulator role, where it really is just a check on safety and soundness and mission.”
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