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The Trump administration may sweep the government’s stakes in mortgage giants Fannie Mae and Freddie Mac into a U.S. sovereign wealth fund — a radical idea that some housing and mortgage finance experts find intriguing.
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Treasury Secretary Scott Bessent acknowledged the idea on March 19, during a wide-ranging discussion of the Trump administration’s economic policies on the “All-In” podcast.
The sovereign wealth fund does not yet exist, and Bessent provided few details on how or when the sweep — which would be undertaken as part of the process of reprivatizing Fannie and Freddie — would work.
But there’s considerable interest in the idea, particularly in light of last week’s shakeup of Fannie and Freddie’s boards by incoming Federal Housing Finance Agency Director Bill Pulte.
The Trump administration — which tried and failed to release Fannie and Freddie from government conservatorship during Trump’s first term — is seen as having a better shot at success this time around with Republicans in control of both the House and Senate.
But critics have warned that if the government no longer provides a backstop for Fannie and Freddie or the loans they guarantee, that could lead to higher mortgage rates for borrowers.
Ronald Kruszewski
Moving the government’s stake in Fannie and Freddie into a sovereign wealth fund would provide “crucial market reassurance about continued government backing,” Stifel Financial Corp. Chairman and CEO Ronald Kruszewski argued in a March 16 op-ed in The Financial Times.
With the government maintaining a stake in the companies, they could operate like utilities without the pressure of having to return big profits for investors, which would require higher lender fees and mortgage rates, Kruszewski maintains.
Bessent said last week that the government’s stakes in Fannie and Freddie — which the Congressional Budget Office estimates are worth about $270 billion — is one of a number of government assets that could be placed in a sovereign wealth fund — including revenue from government energy leases or proceeds from the sales of surplus land.
“We’re working on the study group for the sovereign wealth fund, and we want to do best practices,” Bessent said. “We’re talking to people around the world. We’re talking to investment people, we’re talking to a lot of the other big sovereign funds, and we’re going to do best practices.”
National Housing Conference President and CEO David Dworkin said that while more research needs to be done, the government moving its stakes in Fannie and Freddie into a sovereign wealth fund could potentially lead to them “being safer, more sound and better capitalized than at any time in their history.”
David Dworkin
“The notion of releasing Fannie Mae and Freddie Mac from conservatorship and placing some significant amount of their stock in a U.S. sovereign wealth fund is nothing short of revolutionary,” Dworkin said in an analysis Sunday.
Policymakers have never considered this path for privatizing Fannie and Freddie, Dworkin noted. But it could give investors confidence in the mortgage-backed securities guaranteed by Fannie and Freddie “without the need for a full faith and credit guarantee” from the government.
Bessent has previously said that the Trump administration wants to make sure privatizing Fannie Mae and Freddie Mac doesn’t result in higher mortgage rates for homebuyers. Moody’s Chief Economist Mark Zandi believes releasing the mortgage giants from conservatorship without at least an implicit government guarantee will result in higher interest rates.
Mark Zandi
The most likely scenario is that Fannie and Freddie will continue to transfer some risk to private companies but remain under government conservatorship, Zandi told the ResiClub’s Lance Lambert.
Dworkin, a centrist advocate for affordable housing stakeholders, is also excited about the prospect that income generated by the dividends from the investment might fund future investments in housing.
On the “All-In” podcast, Bessent announced that Trump plans to appoint an “affordability czar” at the White House.
“I have no idea what they intend to do with that position, but I’m looking forward to finding out,” Dworkin said.
The National Housing Conference led a group of 40 housing organizations that three years ago asked President Biden to create a Council on Housing Affordability, a request that “never received a response,” Dworkin said.
Kruszewski and Keefe, Bruyette & Woods CEO Thomas Michaud — who contributed to The Financial Times piece — think Fannie and Freddie shares in a sovereign wealth fund could be worth more than $200 billion by the end of next year, assuming they trade at book value.
“This portfolio could generate approximately $30 billion in annual income, which can largely be distributed as dividends once the agencies are adequately capitalized,” Kruszewski and Michaud wrote. If the dividends were reinvested, that money, along with projected appreciation in Fannie and Freddie’s share price, “could pave the way for a $1 trillion sovereign wealth fund by 2040.”
Billionaire hedge fund manager Bill Ackman — a longtime activist investor in Fannie and Freddie — called the idea of investing the government’s stake in Fannie and Freddie in a sovereign wealth fund “a superb one.”
But Ackman is alarmed at the prospect that his own holdings might be all but wiped out if the Trump administration simply converts its senior preferred stock into common shares — diluting the shares of public investors.
Fannie and Freddie have already repaid $301 billion to the Treasury since being placed in conservatorship in 2008 — $25 billion more than taxpayers were owed.
If the government doesn’t give Fannie and Freddie credit for those payments and “massively dilutes shareholders” in the process of privatizing them, Ackman maintains that the value of Fannie and Freddie’s shares “will be permanently impaired,” making them a “poor core asset for a sovereign wealth fund.”
“What investor, institutional, retail or otherwise will assign a fair value to a company controlled by the government which wiped out the previous investors in the company?” Ackman posted on X following Bessent’s podcast appearance.
Turmoil at Fannie and Freddie
While privatization of Fannie and Freddie and the creation of a sovereign wealth fund would take time — and cooperation from lawmakers — major changes are already in motion at the mortgage giants.
Last week incoming FHFA Director Bill Pulte removed 14 members of Fannie and Freddie’s boards and appointed himself the chairman of both companies.
Bill Pulte
He then fired Freddie Mac CEO Diana Reid and the company’s head of human resources. FHFA’s COO and human resource director were also dismissed, and dozens of employees at the agency were placed on leave.
“We’ve never seen anything like this in Washington since the earliest days of the Roosevelt presidency,” Dworkin said of the changes underfoot under the Trump administration.
Dworkin — who has written a series of analytical pieces on the impacts the Trump administration’s “shock and awe” government downsizing campaign will have on housing — last month warned that plans to cut thousands of employees at the Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) and Ginnie Mae could destabilize the mortgage finance system.
Those concerns about FHA and Ginnie Mae are shared by analysts at the Urban Institute.
Urban Institute researchers Laurie Goodman and John Walsh warned in December that the Trump administration may reinstate caps on high-risk, second-home and investor property loans backed by Fannie Mae and Freddie Mac that had been rescinded by the Biden administration.
But Dworkin remains optimistic that Fannie and Freddie — the “government-sponsored enterprises” or GSEs — will emerge from the turmoil better able to carry out their mission.
“Over the past 16 years, FHFA has had operational control on such a micro level, that lenders have routinely complained about being unable to get guidance from the two Enterprises on the most basic issues, routinely being told, ‘I have to wait for FHFA approval,'” Dworkin wrote on Sunday. “While this has not interfered with the Enterprises becoming profitable and beginning to rebuild capital, it has made it nearly impossible for them to innovate or scale innovations of their lender customers.”
Dworkin said he believes that Pulte’s intention “is to ultimately move beyond this level of micromanagement and allow the Enterprises to function more like businesses and less like appendages of the government.”
While appointing himself chairman of Fannie and Freddie’s boards was “unprecedented” — “I’m not aware of another instance of a regulator assuming the chairmanship of a regulated board” — the FHFA director “has been the de facto board chair of both companies since they were put into conservatorship in 2008,” Dworkin said.
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