Opinion – Reforming Fannie and Freddie is just the first step

For nearly 17 years, Fannie Mae and Freddie Mac — two pillars of the U.S. housing finance system — have remained under federal conservatorship. The debate over how to exit this limbo has consumed housing policy circles for over a decade. Most stakeholders now agree that reform is overdue. But even the best plan to restructure these institutions will fall short if it ends there.

Fannie and Freddie matter. The government-sponsored enterprises guarantee nearly half of all new U.S. mortgages, ensuring liquidity in both good times and bad. They are also among the few institutions with a public mission to serve rural, low-income and historically underserved borrowers. Reimagining them as regulated utilities — with capped returns, cost-based pricing and clear service obligations — would bring transparency and durability to a system long overdue for a modern framework.

But structure alone won’t solve the affordability crisis gripping communities nationwide. Even perfectly governed Government-Sponsored Enterprises cannot close the gap between surging home prices and stagnating wages. Nor can they single-handedly fix the uneven access to credit or the persistent racial homeownership gap.

The median U.S. home now costs over $420,000. According to the National Low Income Housing Coalition, the nation faces a shortage of more than 7 million affordable rental homes. In many markets, even well-qualified buyers with stable incomes and decent credit are being priced out of the market. The gap between what families earn and what homes cost is no longer just wide — it’s systemic. Without a broader effort, a restructured Fannie and Freddie would still be operating on top of a broken foundation.

To truly modernize housing finance, we need to rethink how we underwrite risk, where we allow homes to be built, and who gets access to capital. A healthy system must go beyond liquidity. It must support housing production, economic inclusion and long-term market resilience.

Here are three critical areas where policy must evolve:

1. Zoning and land use reform

The Government-Sponsored Enterprises can’t buy loans on homes that don’t get built. In many cities, exclusionary zoning — such as minimum lot sizes, bans on multifamily units, and onerous parking requirements — chokes off the supply of new housing. While local governments control zoning, federal policy can provide powerful incentives. One approach is to link infrastructure or transportation grants to inclusive land-use reforms. Removing regulatory barriers to starter homes, townhouses and modular construction could unlock affordable housing supply without the need for new subsidies.

2. Credit Innovation for a changing workforce

Today’s credit models don’t reflect how Americans live and work. Renters with flawless payment histories still struggle to build credit. Gig workers with steady earnings face outdated underwriting standards. Appraisals often undervalue modular and manufactured homes despite their key role in expanding affordability. Federal regulators should accelerate the development of alternative credit scoring models, expand underwriting pilots and recognize stable income sources beyond the traditional W-2. A modern credit system must reward reliability — not just conformity.

3. Equity through transparency

The racial homeownership gap isn’t closing on its own — it requires deliberate action. Any Government-Sponsored Enterprises reform must include strong data transparency on lending by race, income and geography. Public dashboards, equity benchmarks and stronger oversight should be part of the solution. If the Government-Sponsored Enterprises are to fulfill a public mission, their performance must be trackable, visible and grounded in outcomes — not aspirations.

Fixing Fannie and Freddie is necessary — but it’s not sufficient. These institutions are deeply ingrained in the core of America’s housing and financial systems. Their influence extends from interest rates and loan terms to neighborhood stability and intergenerational wealth. Restructuring them without addressing the broader system would be a missed opportunity.

Economists such as Mark Zandi of Moody’s Analytics and Jim Parrott of the Urban Institute have long supported a hybrid model: one that combines strong regulation with market participation. They argue that it’s possible to balance broad access to mortgage credit with taxpayer protection. Their work affirms that reform doesn’t require a false choice between efficiency and equity. We can — and must — pursue both.

Recent public friction between Bill Pulte, director of the Federal Housing Finance Agency, and Federal Reserve Chair Jerome Powell is another reminder: Housing finance doesn’t operate in isolation. Interest rate policy, inflation and credit markets all interact with the institutions that support the mortgage system. Reform must be built to withstand not only market volatility but also political and monetary turbulence.

Fannie Mae and Freddie Mac have helped millions of Americans buy homes and weather economic downturns. But they can’t fix zoning laws, modernize credit scoring or close the racial wealth gap on their own. Suppose we want a system that works not just in recovery but in resilience. In that case, we need a long-term vision — one that aligns public purpose with private capital and innovation with accountability.

The next chapter of housing finance must be bigger than balance sheets. It must reflect the realities of today’s economy and prepare for the demands of tomorrow’s homebuyers.

This isn’t just about fixing what’s broken. It’s about building a housing finance system that works — for everyone.

Omar Mbowe, Ph.D., MBA, is the Managing Partner of Auxilia Capital Partners, a New York–based real estate investment firm. He also serves as the executive director of the HED Initiative.

For the latest news, weather, sports, and streaming video, head to The Hill.