Did Fannie Mae and Freddie Mac Cause the 2008 Mortgage Crisis?

Fannie Mae and Freddie Mac did not cause the 2008 mortgage crisis on their own, but they contributed to it. The Financial Crisis Inquiry Commission (FCIC), the panel Congress created to investigate the crisis, concluded in January 2011 that the two companies "contributed to the crisis, but were not a primary cause," because they followed Wall Street into risky lending rather than leading it. One dissenting commissioner, Peter Wallison, argued the opposite: that federal housing policy carried out through Fannie and Freddie was the essential cause. Both companies failed in September 2008 and, as of October 2026, still operate under government conservatorship.

What did Fannie Mae and Freddie Mac do before the crisis?

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs): shareholder-owned companies chartered by Congress to buy mortgages from lenders and package them into mortgage-backed securities that carry their guarantee. Before 2008, investors assumed the federal government would stand behind them, so they could borrow cheaply.

The FCIC found they took on risk in three ways:

• They bought subprime bonds issued by Wall Street. These bonds were backed by mortgages to borrowers with weaker credit histories. Fannie and Freddie bought the highest-rated slices of private-label mortgage securities, which are bonds issued by Wall Street firms without a GSE guarantee. Their purchases were 10.5% of private-label subprime securities in 2001, 40% in 2004, and 28% in 2008.
• They loosened their own standards. In 2005 and 2006, as home prices peaked, they increased purchases and guarantees of riskier loans, including Alt-A loans, which went to borrowers with good credit scores but little income documentation or other gaps. The FCIC said they did this to meet investors' growth expectations, regain market share lost to Wall Street, and pay generous executive compensation.
• They borrowed heavily. Counting the loans they guaranteed, their combined leverage ratio, assets compared with capital, was 75 to 1 at the end of 2007. Their mortgage exposure was about $5 trillion.

What did the commission majority conclude?

The six-member majority made four findings on the GSEs' role:

1. They followed, not led. Wall Street firms and private lenders drove the growth in subprime lending. The GSEs joined late and never bought a majority of private-label subprime securities.
2. Their loans performed better. For borrowers with credit scores below 660, 6.2% of GSE loans were seriously delinquent at the end of 2008, compared with 28.3% of similar loans in private-label securities.
3. Their securities held value. Bonds guaranteed by Fannie and Freddie kept their value through the crisis and did not cause the losses at the large financial firms that were central to the panic.
4. Housing goals mattered only marginally. The Department of Housing and Urban Development (HUD) set annual "affordable housing goals" requiring a share of GSE purchases to come from low- and moderate-income borrowers. The majority found these goals "only contributed marginally" to the GSEs' risky purchases.

The majority still called the GSEs failures: it found a "deeply flawed business model" of private profits with implicit government backing, and $164 million spent on lobbying from 1999 to 2008 to resist tighter regulation.

What did the dissents argue?

Four of the 10 commissioners did not sign the majority report, and they split into two views.

Wallison's view: the GSEs were central. Wallison wrote that the necessary cause of the crisis was federal housing policy, which pushed Fannie, Freddie, the Federal Housing Administration, and banks to lower underwriting standards. He pointed to the affordable housing goals, which Congress first set at 30% of GSE purchases in 1992 and HUD raised to 42% in 1995, 50% in 2000, and 56% by 2008. He counted 27 million subprime and other high-risk loans outstanding in mid-2008, half of all U.S. mortgages, and found Fannie and Freddie held or guaranteed 12 million of them. His count used a broader definition than the majority's, including any loan to a borrower with a score below 660.

Hennessey, Holtz-Eakin, and Thomas: a contributor among many. These three commissioners listed 10 causes of the crisis, starting with a global credit bubble. They wrote that Fannie and Freddie "did not by themselves cause the crisis, but they contributed significantly" through lower credit standards and because so many institutions held their debt that they could not be allowed to fail. They called the two firms by far the most expensive failures for taxpayers.

Two findings in the record cut against Wallison's view: GSE loans to low-score borrowers defaulted far less often than private-label loans to similar borrowers, and private-label securities, not GSE securities, supplied most of the money for subprime lending. What caused the 2008 mortgage crisis covers the other causes, and how subprime mortgages worked explains the loans at the center of the debate.

Why were they put into conservatorship in September 2008?

Mortgage defaults caused losses larger than the minimum capital the law required each company to hold, and a spike in short-term borrowing costs added more losses. Because investors and banks worldwide held their debt, regulators judged that letting them fail would spread losses through the financial system.

The rescue moved fast:

• July 30, 2008: the president signed into law the Housing and Economic Recovery Act (HERA), which created the Federal Housing Finance Agency (FHFA) and gave it power to take over the companies.
• September 6, 2008: with the consent of both boards, FHFA placed Fannie Mae and Freddie Mac in conservatorship, announced the next day. In conservatorship, FHFA runs the companies in place of their boards and shareholders.
• September 7, 2008: Treasury signed agreements to buy senior preferred stock (shares with payment priority over other shareholders) in each company as needed to keep its net worth from falling below zero. Treasury received $1 billion of preferred stock in each and warrants to buy 79.9% of each company's common stock.

Treasury's draws totaled $191.5 billion: $119.8 billion to Fannie Mae and $71.6 billion to Freddie Mac. The last draw was in early 2018. Starting in 2013, the companies paid nearly all their profits to Treasury as dividends; since 2019 they have been allowed to keep earnings to rebuild capital.

What is their status as of October 2026?

Both companies still operate under FHFA conservatorship, now in its 19th year. The Congressional Research Service estimated their capital at 2.84% (Fannie Mae) and 2.36% (Freddie Mac) of assets at the end of the second quarter of 2026, below what FHFA's capital rule requires. On October 20, 2026, Treasury Secretary Scott Bessent said an exit from conservatorship is not imminent. The administration has discussed selling shares to the public, but no exit plan or date has been announced.

For a homebuyer, the conservatorship changes little day to day: lenders still sell conforming loans to Fannie and Freddie, and their guarantee still backs those loans' securities. Any exit plan would need to address how much capital the companies hold and whether the government keeps backing their guarantee, which affects mortgage rates. How the United States recovered from the 2008 crisis covers the other rescue and reform steps.