President Donald Trump is prepared to implement significant changes to the government-owned housing finance behemoths Fannie Mae and Freddie Mac. He may also defy Republican convention by keeping the federal conservatorship that the businesses have been operating under for almost 20 years.
In two social media tweets over the last nine days, the president claimed that Fannie (FNMA) and Freddie (FMCC) are “amazing companies” that are “throwing off cash,” and he made the case that the time has come for the United States to monetize them for taxpayers by going public.
Nevertheless, he claimed that the United States had a “implicit guarantee” to save the corporations if necessary, and he “will stay strong in [his] position overseeing them as president.”
Trump’s federal housing finance administrator, Bill Pulte, told CNBC this week that “we’re studying potentially keeping [Fannie and Freddie] in conservatorship and taking [them] public,” adding that there are “opportunities to monetize these assets.” This provided some additional insight into the president’s thinking.
Jim Parrott, a former economic adviser to President Barack Obama and the owner of the housing-finance firm Parrott Ryan Advisors, told MarketWatch that although ambiguous, these remarks mark a radical shift in Republican perspectives on Fannie and Freddie.
“These comments put on the table for the first time in recent memory the possibility that the government may retain control of [Fannie and Freddie], maybe permanently, and use their revenues to pay for other policy needs,” Parrott stated.
In 2024, Freddie Mac made $11.9 billion in profits, while Fannie Mae made $17 billion. The government could generate $289 billion over ten years if it just sent these profits to the Treasury, as it did from 2012 to 2019. This would be a substantial amount of money as the Republican Party looks for methods to pay for its enormous tax and spending bill.
Although the announcements have caused shares of the mortgage titans to soar, they have not provided any insight into what privatization would entail. In May, Freddie’s common stock has increased by more than 41%, while Fannie’s has increased by more than 47%.
Since the government acquired control of the businesses following the 2008 financial crisis, the shares have mostly been sold over the counter and are still not listed on major stock exchanges.
Despite this, some investors have continued to buy shares in the hopes that a privatization plan will benefit them.
However, recent remarks from the administration raise doubts about this strategy. Michael Bright, the former chief operating officer of the Government Mortgage Association, or Ginnie Mae, under the first Trump administration, said that any gains to current stockholders would be at the price of the American public.
According to him, the government would probably need to forgo its so-called liquidation preference—the sum of money that must be returned to the Treasury before other shareholders receive anything in the case of a sale—in order to entice private bidders of the businesses.
According to a recent research by Laurie Goodman, a housing-finance specialist at the Urban Institute, that liquidation preference is currently valued at $341 billion.
Because the mortgage behemoths have more than repaid the Treasury’s original $191 billion investment in the corporations during the years of unprofitability following the housing meltdown, holders of shares in Fannie and Freddie believe this should be forgiven.
However, Goodman noted that because the bailout was not set up as a loan, “there is no mechanism” for the $341 billion that the corporations owe the government to be waived.
Bright, who is currently the CEO of the Structured Finance Association, a group that advocates for the industry, believes that taking the companies private for the sake of doing so is not justified.
When he told MarketWatch, “There’s no compelling reason to do this right now,” “The mortgage market isn’t exactly having trouble. I’m not sure what issue they’re trying to solve, but Fannie and Freddie are doing great.”
While working as a staffer for former Tennessee Republican Senator Bob Corker, Bright contributed to a bipartisan plan that would have established a new system of privately held mortgage guarantee businesses in place of Fannie and Freddie. In order to protect the 30-year fixed-rate mortgage that serves as the foundation of the U.S. housing finance system, the legislation, which passed the Senate Banking Committee but was never introduced on the Senate floor, would have established a new federal agency to insure mortgage-backed securities against catastrophic losses.
However, because of opposition from both parties’ extreme wings, that attempt never left Congress, according to Bright. The government has few options if Congress does not take action.
Laws are the only way to give mortgage-backed securities a clear government guarantee or to establish new rivals to Fannie and Freddie. This implies that any attempt by the Trump administration to privatize the businesses would probably maintain the existing duopoly and rely more on an unofficial, “implicit” backstop than a clear support system.
According to Parrott, attempts to go public without congressional support run the risk of reestablishing the pre-2008 system, where private stockholders made money during prosperous times and American taxpayers bore the financial burden during lean times.
Despite Republicans’ long-standing ideological resistance to such arrangement, it is now more likely that the government will maintain substantial influence over the two businesses. Another reason is that they are extremely successful businesses whose profits could help close the budget deficit at a time when they are desperately needed.
According to Ian Katz, a policy analyst with Capital Alpha Partners, “it’s likely that something will happen if the president is dead set on this path.”
“Trump’s speaking on this issue puts pressure on his underlings to come up with a plan – if there isn’t one already – and push it forward,” he wrote in an email on Wednesday. “We don’t think Republicans will get in the way of whatever the administration plans, and Democrats don’t have the power to stop it.”
