Last month, President Trump fired off a Truth Social post announcing he was giving “serious consideration to bringing Fannie Mae and Freddie Mac public.”
Weeks earlier, Bill Pulte, Trump’s pick to lead the Federal Housing Finance Agency, declared that he is working to end Fannie Mae and Freddie Mac’s federal conservatorship — the firewall imposed to prevent them from continuing excessive risk-taking.
Trump and Pulte are walking into a minefield that could reward the very institutions that helped set off the worst economic crisis since the Great Depression.
Unshackling these two entities, which underwrite mortgages, would give them every incentive to generate as many home loans as possible, even to borrowers who shouldn’t qualify. Why? Because the federal government guarantees all the loans they write. Why would they exercise discretion in a post-conservatorship world when they know taxpayers would cover their losses?
During the 2008 financial crisis, America learned the hard way how dangerous Fannie and Freddie can be when left unchecked. They fueled the subprime mortgage frenzy by distorting credit markets with government-backed guarantees, leaving taxpayers with a $187 billion tab.
And yet, unlike Enron, whose collapse just seven years earlier sparked outrage and prosecutions, Fannie and Freddie survived. The political insulation of these government-created entities made them too connected to fail.
However, one meaningful reform to emerge from the 2008 crash was the government placing Fannie and Freddie under federal conservatorship, which mandates they maintain stricter underwriting standards. The terms are not perfect, but they at least provide taxpayers some semblance of protection and security from a disaster like the 2008 recession ever happening again.
Yet, now, instead of stopping Fannie and Freddie’s free ride, the Trump administration is considering unshackling them from the conservatorship without first overhauling the system that allowed them to crash the economy in the first place.
To this day, more than 15 years later, Fannie and Freddie continue to operate with the full backing of the U.S. government. The Congressional Budget Office even includes them on the federal balance sheet.
That’s not capitalism, that’s cronyism.
But if the Trump administration removes the federal conservatorship without first instituting structural reforms, it won’t just preserve that cronyism — it will supercharge it. These entities would once again be free to chase profits with government guarantees, privatizing gains while socializing risk. That’s a recipe for disaster that taxpayers have seen before.
If the Trump White House is serious about reforming Fannie and Freddie, it should start by demanding structural free-market changes to their operations. That means no more implicit government subsidy and bailout guarantees or off-balance-sheet accounting. These institutions must become fully private, not some Frankenstein private-public blend that allows them to continue taking risks on taxpayers’ dime.
In other words, the Trump administration should focus on fixing the rot, not exacerbating it.
Releasing Fannie and Freddie from their conservatorship without real reform would be like handing matches back to the arsonists and hoping this time they don’t burn the house down. Fannie and Freddie won’t burn homes, of course, but they can burn down the U.S. economy — not with flames but financial recklessness. They’ve done it before, and they can easily do it again.
President Trump may want a legacy of housing reform, but unleashing Fannie and Freddie without guardrails would risk repeating or even worsening the very crisis he once condemned. The Trump administration should tread carefully.
Thomas Stratmann is a distinguished university professor at George Mason University. He is a professor of economics in the Department of Economics and holds a courtesy appointment at the Antonin Scalia Law School.