Mortgage giants Fannie Mae and Freddie Mac need to be reformed as soon as possible before something catastrophic happens.
"Our housing market and the economy is strong, this is the time to do it. I fear that if we don't do it now we won't be able to make these reforms in times of stress" warned Federal Finance Housing Agency director Mark Calabria during an appearance on Capitol Hill.
The two GSE’s do not originate loans – instead they purchase and guarantee them on the secondary market. They guarantee more than half of the nation’s mortgages.
The plan to reform the duo – which have been under conservatorship for more than a decade following the financial crisis – includes eventually removing the government-sponsored entities from conservatorship, which has been a longtime goal of the Trump administration or going through receivership, although nothing has been decided according to Treasury Secretary Steven Mnuchin.
The wildcard in any reform is what happens to the shareholders, which includes major hedge fund players such as Bill Ackman's Pershing Square Capital.
On Tuesday, Calabria said these shareholders should have been wiped out in 2008 and he warned they are not safe this time around.
"If the circumstances present themselves to where we have to wipe out the shareholders we will," he said in response to a question from Rep. Bill Foster (D-IL).
Calabria's remark sent a chill to investors who are betting big bucks will come their way if Fannie Mae and Freddie Mac get taken out from under government control. As of 2012, profits from Fannie and Freddie have been redirected to the U.S. Treasury, in what’s known as a net worth sweep.
FOX Business' Brittany De Lea contributed to this report.