CBO Confirms: Receivership Is the Best Way to End the Fannie-Freddie Bailout
The Congressional Budget Office (CBO) has released a new report laying out how it will evaluate budgetary proposals to end the government’s control of Fannie Mae and Freddie Mac. Although the report is officially nonpartisan and descriptive, its implications are clear: the best deal for taxpayers—the cleanest and most fiscally responsible path forward—is to put the government-sponsored enterprises (GSEs) into receivership.
The CBO begins with a critical point: even in their profitable state, Fannie and Freddie impose a budgetary cost on the federal government. That cost arises from the fact that the GSEs underprice risk. Because their mortgage guarantees carry an implicit government backstop, investors accept lower fees than they would from fully private guarantors.
The CBO estimates that from 2026 to 2035, the GSEs will issue $15.2 trillion in new guarantees and that these will impose a cost of $81.8 billion on taxpayers. That cost is calculated on a fair-value basis, which includes market risk—reflecting what it would actually cost a private firm to take on those obligations.
This accounting standard matters. The guarantees look cheap in good years, but the GSEs’ promise to make investors whole in the event of borrower defaults is essentially a federally subsidized form of mortgage insurance, and that subsidy is real.
The Two Paths: Conversion or Receivership
CBO then walks through two illustrative exit strategies for the GSEs.
Under one scenario, the Treasury voluntarily converts its senior preferred shares—currently valued at $190 billion—into common stock. It exercises its warrants to acquire up to 79.9 percent of the common equity, then recapitalizes the companies by selling additional shares to raise roughly $162 billion, allowing the GSEs to meet capital requirements for release. The Treasury then slowly sells down its stake. The CBO calls this “Conversion During Conservatorship.”
In the end, the U.S. Treasury ends up with $170 billion in value.
Why not the full $206 billion? Because in converting its senior preferred shares to common, the Treasury gives up its liquidation priority and transfers value to junior preferred and common shareholders. CBO estimates the value of that transfer at $36 billion—a direct subsidy to speculators who bought up shares in the aftermath of the collapse and bailout of the two companies.
Under the alternative receivership scenario, the Federal Housing Finance Agency (FHFA) winds down the current legal entities, transfers the assets and liabilities to new corporations, and sells ownership in those entities to private investors. The old shareholders—including holders of junior preferred and common stock—are wiped out. The proceeds, minus the capital needed for the new entities, go to the Treasury as the senior preferred holder.
In receivership, the Treasury receives the full $206 billion, and no value is transferred to legacy equity holders.
CBO is explicit. Under receivership, “the Treasury would receive all of the proceeds of the common stock sale not kept as capital reserves,” and “the amount available… would almost certainly be less than the liquidation preference of the Treasury’s senior preferred shares.”
In plain English: the U.S. taxpayer gets paid first, everyone else gets zero.
What’s at Stake: A $36 Billion Giveaway
The contrast between the two paths could not be clearer. One ends the bailout cleanly and returns full value to taxpayers. The other gives away $36 billion to investors who knowingly bought stock in two failed institutions placed in conservatorship during the 2008 financial crisis. These investors—including some large hedge funds—have spent the past decade litigating for a payout and lobbying for recap-and-release. Even the very few investors who may still hold shares from before the collapse have held on out of speculation that someday the government could be convinced to transfer value from taxpayers.
To be blunt, conversion isn’t reform. It’s a quiet, retroactive bailout for speculators who already lost in court.
CBO’s framework shows that this would be a transfer of public value to private actors. Treasury would take a haircut on its preferred shares and dilute its warrants—in exchange for nothing at all. The net effect would be that taxpayers foot the bill, while speculators reap windfall profits.
Receivership Is Not Disruption—It’s Resolution
Critics sometimes describe receivership as disruptive. But the CBO report shows that it’s anything but. Under their illustrative scenario, Fannie and Freddie’s business operations would continue uninterrupted under new entities bearing the same names. The “disruption” is purely legal: a break with the capital structure that caused the 2008 collapse.
In reality, receivership would:
- Eliminate litigation risk from shareholder lawsuits
- Avoid politically toxic bailouts for Wall Street investors
- Preserve continuity for mortgage markets
- Clean the balance sheet for a true re-privatization
- And most importantly, maximize taxpayer return
To be clear, CBO’s scenarios are not the Trump administration’s plans (which have not yet been fully developed much less announced). But, as we explained a month ago, the receivership scenario is fully consistent with everything Trump officials have said they want to accomplish. There are no doubt many more policy alternatives that could be developed for the future of Fannie and Freddie. But Congress tried for a decade or so to craft an end to the conservatorships and repeatedly ran into a dead-end.
Receivership follows the clear statutory authority granted to FHFA under the 2008 Housing and Economic Recovery Act. It avoids moral hazard. And it returns full value to the American people.
And, importantly, it avoids capitulation to the speculators who have fought tooth and nail in the courts for control of the profits of Fannie and Freddie and lost in nearly every way imaginable. Receivership avoids gratuitously handing billions of dollars to hedge funds at the expense of taxpayers.
It’s very possible that nothing at all changes. The mortgage market is functioning. Fannie and Freddie have been better managed under the conservatorship than they ever were when they were pretending to be private entities. After 16 years without progress, maybe the reason all reform attempts have failed is simple: conservatorship is the least bad option. And unless policymakers are willing to use receivership, it may remain the only one.
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