Penn Institute for Urban Research Releases Policy Brief on the Future of the GSEs

Washington, D.C. — The Penn Institute for Urban Research (Penn IUR) at the University of Pennsylvania has released a new policy brief, “The Future of the GSEs: Conservatorship, Capital, and Mission,” which distills insights from an expert roundtable held on October 9, 2025, at Penn’s Center in Washington, D.C. The timely report aims to inform policymakers who are considering next steps for the Government-Sponsored Enterprises (GSEs). 

The convening, led by Susan Wachter, Penn IUR Co-Director and Albert Sussman Professor of Real Estate and Professor of Finance at the University of Pennsylvania’s Wharton School, included economists, policymakers, industry leaders and housing advocates to examine pathways for privatizing Fannie Mae and Freddie Mac. Discussions addressed recapitalization challenges, market implications and mission preservation. Key themes included liquidity, affordability, regulatory independence and balancing public purpose with financial viability. Participants emphasized principles for reform, including robust oversight, market stability, innovation in processes, and alignment of incentives to safeguard the American housing finance system. 

Building on Penn IUR’s prior research on the “Utility Model” for post-conservatorship reform, the roundtable explored how to balance financial stability, market competition, and public mission in any future structure for the GSEs.

“Reform of the GSEs is one of the most consequential financial policy issues of our time,” said Wachter. “As policymakers weigh options from a tracking stock to a full release, these findings provide a roadmap for responsible reform. Our discussions indicate that resolving questions of how the GSEs will be regulated is central to the path to privatization.”

Lawrence Parks, CEO and Co-Founder of Forethought Advisors and member of the Penn IUR Advisory Board, noted that the GSEs and their mortgage-backed securities products are quite different from private label mortgage-backed securities, in part because of the mission of the GSEs: (1) to ensure low cost mortgage credit in urban, rural and suburban areas; (2) to provide liquidity to the US mortgage market and (3) to be a stable, reliable source of mortgage credit when the stock market is more volatile. “Therefore, any change in their conservatorship status will require that the GSEs continue to meet their statutory mission and market-stabilizing purpose,” he said.

Ken Fears, Director of Conventional Housing Finance and Valuation Policy at the NATIONAL ASSOCIATION OF REALTORS®, further underscored the stakes:

“The GSEs are the engine of middle-class homeownership. They help finance nearly half of all home purchases, anchor standards, and buttress market stability. Reform done wrong could cripple housing for generations. A thoughtful discussion of reform is critical to supporting homeownership today and in the future.”

Key Themes from the Roundtable

Participants considered the GSEs’ recapitalization challenges, their market role, and their enduring public mission. While Fannie Mae and Freddie Mac together hold $155 billion in capital—below current requirements—profitability and a potential partial stock offering could help narrow the gap. A gradual transition, under continued oversight by the Federal Housing Financial Authority (FHFA), was viewed as the most stable path forward.

Industry leaders highlighted the GSEs’ essential role in the $300 billion daily To-Be-Announced (TBA) market and emphasized that reform must protect this liquidity backbone. Participants also noted the potential for innovation, particularly in technology and process, to reduce origination costs and improve access to credit, alongside a call for expanded multifamily and construction lending to address housing affordability.

Principles for Responsible Reform

The brief concludes with six guiding principles to inform reform efforts:

• Preserve the public mission of broad, affordable access to mortgage credit.
• Protect market stability and liquidity.
• Ensure independent, transparent regulation.
• Align incentives for long-term stability over short-term profit.
• Support innovation in process, not risky product design.
• Address the full spectrum of housing finance, including rental and new development.

The full policy brief, “The Future of the GSEs: Conservatorship, Capital, and Mission,” is available at https://penniur.upenn.edu/publications/the-future-of-the-gses-conservatorship-capital-and-mission.