February 11, 2026
The Honorable Mike Flood
Chairman, Subcommittee on Housing & Insurance
Washington, DC 20515
The Honorable Emanuel Cleaver
Ranking Member, Subcommittee on Housing & Insurance
Washington, DC 20515
Dear Chairman Flood, Ranking Member Cleaver, and Members of the Subcommittee:
On behalf of National Taxpayers Union, the nation’s oldest taxpayer advocacy organization, I write to express our views ahead of today’s hearing on the secondary mortgage market. Substantive reform of Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs), remains one of the most unresolved issues from the 2008 financial crisis that burdens taxpayers to this day. Absent a comprehensive fix, there are numerous reforms on the table to rightsize the government’s role in housing finance policy, and we stand ready to assist your efforts.
As you know, Fannie Mae and Freddie Mac were created to provide stability and liquidity to the U.S. housing market, but, over time, they have become one of the largest—and least understood—financial risks borne by American taxpayers. Although often described as private companies, these GSEs have operated with an implicit (and, more recently, explicit) federal guarantee that distorts markets, encourages excessive risk-taking, and exposes taxpayers to enormous potential losses during housing downturns. Today, Fannie and Freddie back $7.7 trillion in loans and account for over half of the single-family mortgage market.
The core problem is simple: Fannie and Freddie privatize gains while socializing losses. They purchase and guarantee trillions of dollars in residential mortgages, packaging them into securities that investors treat as nearly risk-free because of the widespread assumption that the federal government will step in if the GSEs fail. That assumption is not theoretical. In 2008, when the housing bubble burst, Fannie and Freddie collapsed under the weight of bad loans and were placed into federal conservatorship. Taxpayers ultimately provided roughly $190 billion to keep them afloat—one of the largest bailouts in U.S. history.
NTU recognizes that a wind down of the GSEs would be politically difficult to achieve in the near term. Nevertheless, there is a menu of reforms that could garner support while reducing taxpayer exposure to future losses.
Eliminate High-Cost Loan Limits
Fannie Mae and Freddie Mac are limited by law to purchasing housing mortgages below a certain dollar size which are then repackaged into mortgage-backed securities. In calendar year 2026, the GSEs may purchase mortgages in high-cost areas up to $1,249,150, which is excessively generous. It is essential that Congress eliminate the high-cost loan limit so taxpayers no longer back million dollar homes in some of the most expensive zipcodes in the country.
The high-cost loan limits increase every year, so taxpayers will be on the hook to underwrite even more expensive mortgages, increasing future exposure to even more severe losses in the event these borrowers default on their obligations. Not only does the higher conforming loan limit increase risk for taxpayers, it also takes business from a willing private mortgage insurance market, while undermining the prospects for true housing policy and GSE reform in the future.
According to the Federal Reserve Bank of St. Louis, the median sale price of homes sold in Q2 2025 was $411,000, roughly 32% of the high-cost loan level and much lower than the “regular” limit of $832,000. Further, fewer than one in ten sales are above the $1 million mark, let alone $1.2 million. Ending the high-cost loan level will only impact a small portion of the housing market, and there is little evidence to suggest that liquidity would dry up for this segment of the market without the GSE subsidy.
Eliminate Federal Backing for Investor and Second Homes
A great deal of attention has been paid to banning “large” institutional investors from purchasing single family homes to help address America’s housing shortage. Rather than getting government in between voluntary transactions between willing buyers and sellers, a better alternative would be prohibiting the GSEs from backing mortgages for non-owner occupied single family homes. The status quo with this policy stretches Fannie and Freddie’s mission beyond its justification, exposes taxpayers to unnecessary risk, and worsens affordability challenges for primary homebuyers.
According to a study by the American Enterprise Institute, in 2016 “investor loans and vacation homes were 10.9 percent of GSE acquisitions by count and 8.7 percent by dollar volume.” It’s clear that investor and second home loans comprise a significant portion of the GSE balance and have little to do with promoting homeownership. Importantly, ending the taxpayer-backstop of investor loans would not have a significant impact on the market, as it can be entirely handled by the private sector. There is little justification for the government to subsidize these products or for taxpayers to shoulder the risks they entail.
In 2021, then-Ranking Member of the Senate Banking Committee, Pat Toomey (R-PA), introduced a proposal to achieve such an outcome, specifically for investor loans. This legislation, titled the “No GSE Subsidies for Investor Properties Act,” endorsed by NTU, can be a model for reducing taxpayer exposure to non-owner occupied loans.
Evaluate Credit Scoring Models on Accuracy and Risk Prediction
Taxpayers have a huge stake in ensuring that financial risks are properly and predictably measured for the government loan programs they have been forced to backstop. Credit scores are vital tools for taking those measurements, so the loan space has common reference points for creditworthiness. For almost a decade, the GSEs have reviewed, tested, and implemented changes to the underlying criteria of credit scoring that make Americans eligible for a taxpayer-backed loan. Recently, the Federal Housing Finance Agency has shifted to allow Fannie and Freddie-handled loans to use more than one type of credit score beyond FICO.
In 2019, NTU released a policy paper examining these developments and highlighting how moving to a multi-score system would impact mortgage lenders and taxpayers, and potentially lead to a “race to the bottom” effect when offering credit to borrowers. As NTU noted last year, “After the 2018 passage of legislation directing Fannie and Freddie’s watchdog, the Federal Housing Finance Agency (FHFA) to develop a process for evaluating credit score models, in 2022 FHFA finally approved two that the GSEs could use: VantageScore 4.0 and the newer FICO 10T. Incoming FHA Director Bill Pulte’s unexpected decision just three months ago to instead “allow” Fannie and Freddie-handled loans to use either VantageScore 4.0 or Classic FICO further roiled lending markets.”
It is time for a reset in public policy toward the use of credit scores at Fannie Mae, Freddie Mac, and other government entities involved in lending. A recent Freedom of Information Act filing released by the Housing Policy Council raises many questions about why and how a dual-score decision was accepted. Unfortunately, taxpayers and stakeholders are left in the dark because the documents HPC received are often so full of redactions, with entire pages blanked-out. In other areas, there are very precise deletions that hide tantalizing clues about the opinions of GSEs and others involved in the decision-making process.
With taxpayers on the hook for trillions of dollars worth of mortgage liabilities, there is a lot at stake with FHFA’s approach to credit scoring, loan limits, and the types of mortgages eligible for backing. Thank you for your consideration of National Taxpayers Union’s views, and should you or your staff have any questions, I am at your service.
Sincerely,
Thomas Aiello
Senior Director of Government Affairs