"Taking the GSEs out of conservatorship will create a more even playing field amongst mortgage investor groups," he says. "Today, Fannie Mae and Freddie Mac enjoy certain advantages as a result of their federal backing – local and state tax exemptions and market premiums driven by their explicit government support, amongst others."

With more competition, Allen thinks more innovation could occur. "In an open market – one in which no structural advantages are bestowed upon one actor over another – there's an inherent likelihood for new thinking and action," he says. "The incentive structures of that competition can breed innovation."

Before privatization occurs though, Allen says the Federal Housing Finance Agency needs to get Fannie and Freddie in a position to go private.

"FHFA needs to recapitalize the GSEs to ensure they have sufficient funds on hand to operate their businesses and pursue innovation," Allen says. "They've already started taking steps down that path."

Allen expects this process to take anywhere from 12 to 18 months. "Recapitalizing their balance sheets and adjusting operations will take time," he says.

But for privatization to work, Allen thinks it needs to be done carefully. If it isn't, the aftershocks to the market could be severe.

"The GSEs play a critical role in the functioning of our housing market," Allen says. "They touch the majority of the county's mortgages today. Their return to private hands needs to be handled thoughtfully, with effective financial foresight and transition planning."