The Heritage Foundation

Factsheet #140

March 13, 2014

March 13, 2014 | Factsheet on

Fannie and Freddie - The Facts


  • Government-Sponsored Enterprise (GSE). Fannie Mae became a Government-Sponsored Enterprise in 1970; Freddie Mac became a GSE in 1989. These GSEs were not a dominant factor in housing finance until the 1990s. It did not take very long for them to nearly destroy the housing market in 2007 through taxpayer-backed government guarantees.
  • GSEs Equal Corporate Cronyism. They enjoyed (1) the perceived security of federal backing and a U.S. Treasury line of credit, (2) an exemption from filing financial statements with the Securities and Exchange Commission, and (3) an exemption from state and local income taxes. Private lenders could not compete with these cost advantages.
  • Duty to Serve. This so-called duty has serious consequences for taxpayers because it encourages lending based on social goals rather than lending that is based on sound financial principles. Lenders will not stay in business when they are forced to lend based on political and social criteria.
  • GSE Subsidies. From 1949 to 1968 (the years that Fannie Mae was allowed to purchase only government-insured mortgages), at least 94 percent of all mortgages received no federal backing of any kind. Had government regulation of interest rates not crushed the Savings and Loan industry, Fannie Mae would likely have remained a small part of the market and proved that GSEs are not necessary to provide housing finance.


  • Subsidies Not Helping Homeowners. Fannie and Freddie have received billions in subsidies, but the homeownership rate is only 1 percentage point higher than it was in 1968.
  • Massive Debt. Fannie and Freddie have standardized the long-term fixed-rate mortgage, a financial product that results in borrowers paying relatively high interest costs. Even though the homeownership rate has barely moved since 1968, mortgage debt has increased nearly fivefold.
  • Risk to Taxpayers. Fannie and Freddie are in federal conservatorship until Congress acts—while taxpayers are on the hook for more than $4 trillion in guarantees.


  • Eliminate and Do Not Replace GSEs. Americans do not need another housing crisis with volatile price changes like the one caused by Fannie and Freddie in 2007.
  • Let Market Expand. Removing the GSEs from the home mortgage market will remove the perception that long-term fixed-rate mortgages are the only viable option for future homeowners and open the door for a more competitive mortgage market that reduces interest rates for borrowers.
  • Benefits to Taxpayers. In the long run, closing down the GSEs will relieve taxpayers of future bailouts and likely result in lower mortgage debt, higher personal income and savings, lower home prices, and lower monthly mortgage payments.

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