Sheila Bair: A Risky Return for Housing Giants

February 28, 2026

Written by: Sheila Bair

In a recent Financial Times opinion piece, former FDIC chair Sheila Bair warns that current efforts to lower mortgage rates by expanding Fannie Mae and Freddie Mac’s mortgage-backed securities (MBS) purchases could repeat the mistakes that led to the 2008 financial crisis.

Bair explains that the Federal Housing Finance Agency has directed the government-sponsored enterprises (GSEs) to significantly increase their retained portfolios of mortgages and MBS. While the move is intended to reduce mortgage rates and improve housing affordability, she argues it revives the same “interest rate arbitrage” strategy that once turned the GSEs into highly leveraged, hedge fund-like institutions.

Before the financial crisis, Fannie and Freddie amassed massive portfolios—peaking at $1.5 trillion—funded by low-cost debt investors assumed was implicitly backed by the federal government. When housing markets collapsed, their portfolios suffered severe losses, requiring a $200 billion Treasury bailout. The companies remain in conservatorship today.

Now, the GSEs are once again expanding their portfolios—tripling them in 2025 to reach their $450 billion post-crisis cap. Bair cautions that the companies are even less prepared to manage this risk than they were in 2008, with capital levels still below regulatory minimums. Moreover, she argues the expanded purchases will likely have only a limited impact on mortgage rates, since the portfolio would represent just a small share of the total MBS market.

Rather than addressing the root problem of housing affordability—insufficient supply—large-scale government MBS buying risks reigniting housing inflation, as seen before the 2008 crisis and during the pandemic-era Federal Reserve interventions.

Bair concludes that returning to a model that privatizes profits while socializing losses is inherently unstable. If the GSEs falter again, taxpayers could once more bear the burden. In her view, revisiting this pre-crisis strategy is a step backward—and unlikely to end well.

A globally recognized authority on financial regulation and economic policy, Sheila Bair led the FDIC through the 2008 financial crisis and has since continued to shape the future of finance through leadership roles in government, academia, and the private sector. Named to Time’s “Top 100” and Forbes’ “Most Powerful Women” lists, she is a trusted voice on stability, reform, and consumer protection in the global economy. To bring Sheila Bair’s insight and leadership to your next event, contact WWSG.

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