After more than fifty years of U.S.government-sponsored housing finance, why has home ownership not increased and why are houses unaffordable?

Published in Housing Finance International Journal.

The U.S. housing finance system is unique in the world by being dominated by the Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. GSEs are a really poor and dangerous idea. By definition, they combine private ownership of their stock with special privileges, including most importantly a guarantee of their obligations by the government, i.e. the taxpayers. This guarantee is said to be only “implicit,” but is fully real, as history demonstrates. It naturally leads to overexpansion of mortgage credit and inflation of house prices.

Fannie was made into a GSE in 1968. Freddie was created as a GSE in 1970. Thus, we in the U.S. have had for well over half a century these two expanding government-guaranteed and government-subsidized attempts to increase home ownership and make it more affordable. But the home ownership rate has increased by only 1 percentage point during that long time.

Over the last five decades, the GSEs became enormous: Fannie’s total assets are $4.4 trillion as of March 2025, and Freddie’s are $3.4 trillion, giving them combined assets of $7.8 trillion. That’s “trillion” with a “T.” All the risk is guaranteed by the government. The GSEs are a huge and distorting commitment to housing finance which burdens our over-indebted government’s credit, although the partial private ownership allows the GSE obligations to be kept off the government’s books.

Fannie and Freddie have been majority-owned by the U.S. Treasury since they were bailed out by the government in the panic of 2008, and the Treasury has an option to acquire up to 79.9% of their common shares for the price of $0.00001 per share—in other words, essentially for free. But both these GSEs still have private shareholders, too. Various proposals to make Fannie and Freddie’s stock fully privately owned have been and are being made, but this would not change the fundamental problem at all: they would still be GSEs.

In addition to the giant Fannie and Freddie, there is much more government intervention and risk-shifting to the taxpayers in the U.S. housing finance system. There is Ginnie Mae, also created in 1968, which is a government corporation, with 100% of its stock owned by the U.S. Treasury. Ginnie as of March 2025 guarantees $2.7 trillion (again with a “T”) of mortgages and is itself fully guaranteed by the taxpayers.

If we add Fannie, Freddie and Ginnie together, we find these government-guaranteed organizations represent the staggering sum of $10.4 trillion. In round numbers, the U.S. government guarantees $10 trillion out of total outstanding residential mortgages of $14 trillion: in other words, the government guarantees about 70% of the mortgage credit in the country. In my opinion, this is financially ridiculous: no national mortgage market worthy of the name should have to be 70% government guaranteed.

There is more U.S. government mortgage presence on top of that. The Federal Home Loan Banks (FHLBs), which are also GSEs, lend money to finance the holding of mortgages by financial institutions. The FHLBs have total assets of $1.2 trillion. The $1.1 trillion in debt they issue to fund themselves is also guaranteed by the government. This brings the total government backing of housing finance to about $11 trillion.

Then there is the Federal Housing Administration (FHA), the government’s official sub-prime mortgage lender. It insures the credit risk of higher risk mortgage loans, with insurance in force of about $1.5 trillion. The Veterans Administration provides mortgage credit insurance to members and veterans of U.S. armed services. There are about $1 trillion in loans with VA insurance. Any deficits of the FHA and VA programs are funded by the Treasury. Since most FHA and VA loans are securitized by Ginnie, which adds its guarantee to their insurance, they are for the most part already included in the Ginnie numbers.

Finally, the U.S. central bank, the Federal Reserve, is a huge investor in residential mortgages, with $2.2 trillion on its balance sheet at the end of April 2025. In my opinion, the Fed should own zero mortgages, but instead it owns about 15% of the entire market. The Fed buys mortgages in the form of securities guaranteed by Fannie, Freddie and Ginnie, so the government had the credit risk already. But by buying them, the Fed adds to the credit risk an enormous interest rate risk to the government, since it makes 30-year fixed rate investments and funds them short. I estimate that this now upside-down interest rate risk gamble has lost approximately $100 billion so far for the Fed, which means also for the government and the taxpayers—and continues to lose about $40 billion a year.

What has the massive U.S. government intervention in mortgage lending achieved in the way of improved home ownership? The U.S. home ownership rate was about 64% in 1970 and it is 65% in 2025. It has hardly increased in 55 years, all the government and government-sponsored housing finance notwithstanding.

The government intervention has, however, helped inflate two 21st century house price bubbles. The first peaked in 2006 and led to the financial crisis of 2007-09. The second sent average house prices far above their 2006 peak, including rising at over 18% in 2021. This has led to their continuing unaffordable levels, especially for young families trying 22 HOUSING FINANCE INTERNATIONAL Summer 2025 Regional round up: news from around the globe to buy their first house. Although the rate of increase has now become moderate, average house prices are still rising, at the annualized rate of 3% in April 2025. With inflation at 2.3% for that month, average house prices are also still going up in real terms.

It is often observed that U.S. house prices are simply too high, which helps explain why sales of existing houses in 2024 were the fewest since 1995, even though the population is 27% larger than then.

We can conclude that the vast scale of U.S. government intervention in guaranteeing and subsidizing of mortgage debt has been a mistake. The housing finance system should grow more private, with the market share of the GSEs being systematically reduced and the government’s overall role getting smaller. The Federal Reserve’s target for investment in mortgages should be zero. The government should target a substantial reduction in the percentage of the mortgage market it guarantees. As a first estimate, I recommend a reduction to 20%, down from the current egregious 70%.