Ex-GSE risk chief makes case for Fannie-Freddie merger

Clifford Rossi speaks from the vantage point of someone who has been inside the government-sponsored enterprises (GSEs). In different periods during the 1990s and 2000s, he served as a senior financial economist at Fannie Mae and as senior director of single-family risk management at Freddie Mac.

Rossi was among the earliest advocates of merging the two mortgage giants, an idea that has gained traction recently after President Donald Trump shared an AI-generated image on Truth Social depicting himself at the New York Stock Exchange alongside the phrases “MAGA LISTED NYSE” and “The Great American Mortgage Corporation.” The image included the date of November 2025 and the name was used recently by the GSEs in an advertising campaign. 

The proposal drew even more attention when billionaire investor Bill Ackman, founder of Pershing Square Capital Management, reposted Rossi’s April article on X while voicing his own support for the merger.  

Rossi, who now serves as the academic director of the Smith Enterprise Risk Consortium at the University of Maryland, argues the case is simple. In an interview with HousingWire, he said the GSEs compete on product, service and price, but in practice, they’ve become nearly indistinguishable in the first two areas, leaving pricing as the only point of differentiation.

Rossi — who has also held roles at Countrywide, Washington Mutual Bank and Citi — describes himself as a “guy who’s all for competition.” But he says it does not make sense to have entities which are “nothing more than a large financial market utility” competing on price.

That form of competition, he added, helped to erode capital in the lead-up to the global financial crisis — a dynamic that ultimately left both Fannie Mae and Freddie Mac under government control.

“I had a front row seat to this — I saw it with my own two eyes. The competition for market share started to manifest around 2000 to 2003,” Rossi said. “Large lenders, originators at the time, would come in and say to one of the CEOs, ‘We’d love to be able to do a 100% market share agreement with you, but we are not going to do it for 25 basis points. We are going to do it for 15 bps, or we’re going to take the business and walk across the road.’” 

According to him, guarantee fees were soon locked in at levels that didn’t reflect the credit risk the GSEs were actually taking on. “That level of competition was not healthy,” Rossi said. 

Systemic risks

Rossi argues that merging the two enterprises would create efficiency gains. Both operate with the same structure — three business lines that cover single-family, multifamily and capital markets — and together employ about 15,000 people.

In 2024, their combined general and administrative expenses reached $6.5 billion. He believes consolidation could be done “fairly quickly and seamlessly” without disrupting the secondary market, since the necessary infrastructure and talent already exist.

There are also governance signals that this could be done easily, he added. The appointment of Federal Housing Finance Agency (FHFA) Director Bill Pulte as board chair at both companies under conservatorship suggests he has the latitude to steer a combination.

Meanwhile, the Single Security Initiative (SSI) and Common Securitization Platform (CSP) have already erased practical differences between the firms by allowing them to issue a common mortgage-backed security.

On the legal front, Rossi notes that both entities fall under the Housing and Economic Recovery Act (HERA) of 2008, which gave the FHFA director broad authority to act in the best interest of taxpayers, the agencies and the housing market. While it’s somewhat vague whether congressional approval would be required for a merger, he said the charters would need careful review.

“If they were to move on this now, maybe they could be close to getting an IPO out the door by the end of the year. That’s probably a little aggressive, but the administration likes to move quickly on such things,” he said.

Still, Rossi emphasizes that his support for a merger is less about cutting costs and more about preventing systemic risk. Fannie and Freddie are the end of the line — the aggregators of all that credit risk. If they’re not pricing it correctly and capitalized to withstand that risk, “bad things happen,” he added.  

He noted that, in a private market, other competitors would inevitably emerge. The private-label securitization market could step in but not immediately. 

Privatization efforts

Rossi said merging the two companies could help bring mortgage rates down through efficiency gains and is probably “not a huge deal.”  But he cautioned that privatization could push rates higher (by as much as 25 to 65 basis points, depending on assumptions) if investors no longer perceive an implicit government guarantee.

“That is reflective of the fact that in today’s world, most investors view them as effectively federal agencies,” Rossi added. “The FHFA and the Treasury have to continue to reinforce with investors that no move would be made if it were to have disruptive or adverse impacts on the housing finance system, including an appreciable increase in mortgage rates.”

Before any move toward privatization, Rossi argued, the GSEs must be capitalized. A more prudent path, some suggest, would be to allow them to retain earnings over several years. Another condition would be very strong oversight. Without these requirements, “it’s going to be game over at some future point,” he warned.

He also pushed back against the idea of a stock offering prior to privatization.

“That, to me, does not seem like the right sequence,” Rossi said. “Investor interest will be highest once they realize that they are no longer controlled under the conservatorship model.”