The federal government has dominated the secondary mortgage market ever since the 2008 financial crisis. Many seem to have forgotten, though, that the situation was not much different prior to the 2008 crash.

This federal dominance—particularly by Fannie Mae and Freddie Mac—is problematic for the Biden administration because it violates (at the very least) the spirit of the GSE’s federal charters.

Here are a few troubling facts about the secondary mortgage market, where Fannie and Freddie buy mortgages and sell mortgage-backed securities (MBS).

From 2009 to 2020, Fannie and Freddie’s annual share of the total MBS market averaged 70 percent. If we include Ginnie Mae securities, those that are backed by FHA mortgages, the federal share of the MBS market averaged 92 percent per year. (These numbers are from SIFMA data and Ginnie Mae’s March 2021 release.)

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There has been virtually no private market for MBS for the last thirteen years.

What’s just as troubling is that from 1996 to 2007, Fannie and Freddie’s annual share of the total MBS market averaged 60 percent. That’s only 10 percentage points lower than the post-crisis share, and it shows that they were responsible for more than the majority of the market in both time periods. The trend, of course, is moving in the wrong direction.

While neither of these numbers may seem problematic to anyone who wants the federal government standing behind the MBS market, they are extremely difficult to reconcile with the GSE’s federal charters. (Both of them, incidentally, are encoded in federal law).

Fannie’s charter, for instance, stipulates that their secondary market operations “should be conducted on such terms as will reasonably prevent excessive use of the corporation’s facilities.” (See Section 304(a)(2).) Freddie’s charter (Section 305) includes virtually identical language.

Together, the charters clearly demonstrates that Congress intended for Fannie and Freddie to support the secondary market, not dominate it. Yet, now more than ever, the private market is relegated to an afterthought. Indeed, it is difficult to see how the GSEs can abide by the requirement to purchase residential mortgages that are “of such quality, type, and class as to meet, generally, the purchase standards imposed by private institutional mortgage investors.”

Private institutional mortgage investors barely exist relative to the GSEs, and the notion that the GSEs have been meeting private investors’ standards during the last few decades is laughable.

So it seems like a good time to point out, once again, that Fannie and Freddie have done nothing to provide a durable increase in the U.S. homeownership rate. The starting point for this evidence is 1970.

Freddie Mac was created in 1970 and, at that time, was tied to the (soon to implode) Savings & Loan industry. Fannie Mae completed its transition to a GSE in 1970. Prior the start of this transition (in 1968), Fannie exclusively purchased federally insured mortgages, a function that was spun off to Ginnie Mae.

According to the Census Bureau, the homeownership rate was 64 percent in 1970. That’s basically where it hovered for most of the 1980s and 1990s, higher than where it bottomed out in 2016, and almost exactly where it stood in the middle of 2019. (For anyone interested, evidence also shows that the federal backing of mortgages was not the major driver in the homeownership rate bump between 1940 and 1960).

These figures suggest that the Fannie/Freddie experience has been a wash for U.S. homeowners. But there’s actually much more to the ownership story than just the national rate.

For instance, the Census Bureau’s American Community Survey (ACS) gives us homeownership rates by core-based statistical area (CBSA), a statistic that can be paired with each CBSA’s median price-to-income ratio. These figures—courtesy AEI’s Tobias Peter and Ed Pinto—show a national ownership rate of 63.3 percent for 2019.

However, for the 25 CBSAs with the highest price-to-income ratios (the least affordable homes), the average ownership rate is just 61.8 percent. In San Jose and Los Angeles, where Fannie and Freddie have helped price low-income borrowers out of the market for years, the ownership rates are 56.6 percent and 48.6 percent, respectively.

For the 25 CBSAs with the lowest price-to-income ratios, the average rate is 69.5 percent.

The evidence is clear. Fannie and Freddie (along with the FHA) have helped fuel more mortgage debt, with less equity, for higher-priced homes. These policies have been particularly harmful for low-income families.

Naturally, you will not hear this sort of talk from trade groups such as the National Association of Realtors (NAR), or anyone else pushing for an explicit federal backstop for the MBS market.

The NAR’s Bernard Fulton, for example, recently argued that Fannie and Freddie are “absolutely critical to the homeownership rate in America, and the job creation that supports,” adding that “Without them, our market is significantly smaller, maybe catastrophically smaller for some businesses.”

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Urban’s Jim Parrott and Moody’s Mark Zandi have relied on similar fears. They have argued, for instance, that shrinking the mortgage giants’ footprint or fully privatizing them would mean that “the housing and mortgage markets, and by extension the broader economy, could face significant disruption.”

Oddly enough, even the types of reform proposals that Zandi has supported in the past—those that include explicit federal guarantees for the MBS market – assumed that “between a third and half of all mortgage loans will be covered by this catastrophic government backstop.”

There simply is no way to implement such a proposal without shrinking the GSEs’ footprint, but nobody in the Biden administration appears in a hurry to go that route. Nonetheless, any reform proposal will have to shrink the GSEs’ market share if it is to adhere to federal law.

One of the only silver linings in the GSEs’ lengthy conservatorship is that any willing administration can shrink their footprint. All Americans need now is an administration willing to complete the task.