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Shares in mortgage giants Fannie Mae and Freddie Mac tumbled Tuesday after a spokesperson for their federal regulator confirmed to Bloomberg News that the government is considering taking the companies public, but leaving them in conservatorship.
Shares in Fannie Mae were down as much as 9 percent Tuesday morning after the story broke, while Freddie Mac shares were initially down 4 percent, as investors weighed whether the Trump administration is more interested in mining Fannie and Freddie’s profits than privatizing them.
Shares in the mortgage giants soared more than 40 percent on May 22 to new 52-week highs after President Trump posted on social media that “Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH, and the time would seem to be right” to take them public.
Fannie and Freddie are already publicly traded on an over-the-counter market. But investors have been hoping the Trump administration will restructure the companies to monetize the government’s $270 billion stake in the companies — and generate a windfall for existing investors in the process.
Federal Housing Finance Agency Director Bill Pulte shed some additional light on the administration’s plans in a May 28 appearance on CNBC, noting that Trump “very explicitly says that he wants to take them public. He did not say that he wants to privatize them.”
Bill Pulte
Pulte also said the administration is studying whether it could take Fannie and Freddie public but keep them in conservatorship. An FHFA spokesperson confirmed to Bloomberg that’s an option that’s being considered.
“In any scenario, we will ensure the mortgage-backed securities market is safe and sound and that there is no upward pressure on rates,” the FHFA spokesperson told Bloomberg.
Trump posted last week that the plan is for the government to maintain an “implicit guarantee” of the government sponsored entities’ (“GSEs”) obligations. That would keep pressure off mortgage rates, but leave the government on the hook to bail the companies out again if they get into trouble again. The government placed the companies in conservatorship in 2008 as falling home prices and foreclosures triggered the Great Recession of 2007-2009.
In a note to clients Friday, JPMorgan strategists confessed they were “a little flummoxed by Pulte’s comments about taking the GSEs public but not necessarily privatizing,” Bloomberg reported.
“If the goal is to sell off the Treasury stake, potentially raising hundreds of billions of dollars to pay down the U.S. debt, we’d think that private investors would want the government’s involvement to be somewhat lighter than today,” JPMorgan strategists said.
Moody’s Ratings on May 16 became the last major rating agency to strip the U.S. of its most favorable debt rating over concerns that Congress and “successive U.S. administrations” have failed to tackle annual budget deficits.
Christopher Whalen
But instead of selling the Treasury’s stake in the companies, the government could buy out public common shareholders — including billionaire Bill Ackman — and then issue preferred shares that pay dividends, Whalen Global Advisors LLC Chairman Christopher Whalen told Yahoo Finance on May 22.
That plan would leave the U.S. as the sole voting shareholder of Fannie and Freddie, and “give Treasury all the cash they need,” Whalen said.
Treasury Secretary Scott Bessent has suggested that the Trump administration could sweep its ownership stake in Fannie and Freddie into a sovereign wealth fund.
Former Fannie Mae Chief Financial Officer Timothy Howard thinks the government should just consider its senior preferred shares to be repaid, which would make the warrants it holds for Fannie and Freddie common stock more valuable.
Timothy Howard
“If maximizing Fannie and Freddie’s value to taxpayers — as Pulte keeps insisting upon — is indeed a key administration objective,” that’s the “the only way to do that,” Howard wrote Friday on his blog.
That’s essentially the plan put forward by Ackman’s Pershing Square fund, which estimates that Fannie Mae can be fully recapitalized and ready for an initial public offering by year-end 2026, while Freddie Mac would not be fully recapitalized and ready to IPO until 2027.
Moody’s Chief Economist Mark Zandi thinks the odds are about even that the Trump administration will simply opt to maintain the status quo, keeping Fannie and Freddie in conservatorship so mortgage rates don’t go up.
“The system works well as-is, with risks already shifted to private investors via credit risk transfers,” Zandi posted on X Monday. “No legislation is needed, and there’s little incentive to disrupt what’s already functioning smoothly.”
Mark Zandi
Zandi put the odds of Fannie and Freddie being released from conservatorship with an implicit government guarantee at 35 percent. Allowing the mortgage giants to operate as they did before they were placed in conservatorship in 2008 might push mortgage rates up by 20 to 40 basis points as MBS investors worry about long-term stability, Zandi forecast.
Mortgage rates would probably jump 60 to 90 basis points if Fannie and Freddie were released from conservatorship with no government backing, Zandi theorized, leaving more borrowers turning to FHA loans. A basis point is one hundredth of a percentage point.
Releasing the mortgage giants with an explicit government guarantee might bring mortgage rates down by 25 basis points, but Congress would have to pass legislation to make that happen, and “political gridlock makes this unlikely,” Zandi wrote.
Zandi said he’d like to see Fannie and Freddie chartered as government corporations with an explicit guarantee, but the need for legislation means there’s no chance of that happening.
Similarly, real estate industry groups like the National Association of Realtors and the Mortgage Bankers Association have proposed a “utility-style” model for Fannie and Freddie that would provide an explicit guarantee while limiting their risks and profits.
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