Impact on rates depends on the structure of rumored IPO. Whatever the plan turns out to be, the Trump administration has stacked the boards at the mortgage giants with its supporters.
Shares in mortgage giants Fannie Mae and Freddie Mac soared Friday on reports that the Trump administration is planning to take the companies public again by the end of the year.
The plan would value the companies at $500 billion, with the government raising $30 billion, The Wall Street Journal reported, citing anonymous “people familiar with the matter.”
Shares in Fannie Mae and Freddie Mac were up 20 percent on the news, although it remains to be seen how the government will treat existing shareholders.
The Treasury Department holds a large stake in the mortgage giants, which were placed in government conservatorship in 2008. Depending on how the IPO is structured — and whether the government retains an ownership stake — existing shareholders like Pershing Square billionaire Bill Ackman could be richly rewarded or all but wiped out.
For real estate agents, homebuyers and homesellers, the bigger question is how an IPO might impact mortgage rates.
Releasing Fannie and Freddie from conservatorship by privatizing them without an “explicit guarantee” that the government stands behind them could drive mortgage rates up by 60 to 90 basis points, Moody’s Analytics Chief Economist Mark Zandi estimated in June.
But the Trump administration has signaled that rather than privatizing Fannie Mae and Freddie Mac, it intends to keep them in conservatorship and continue providing an explicit guarantee.
Treasury Secretary Scott Bessent said in March that the government’s stakes in Fannie and Freddie — which the Congressional Budget Office estimated in December is worth about $270 billion — could be swept into a sovereign wealth fund.
In that scenario, the government might be able to bring rates down if it lowered the fees it charges lenders to offset risk, without alarming investors in mortgage-backed securities who fund most U.S. home loans. But that could also put taxpayers on the hook for another bailout if home prices crash and foreclosures rise.
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 government guarantee while limiting the companies’ risks and profits.
Whatever the plan turns out to be, the Trump administration is likely to face little opposition from the mortgage giants’ boards of directors.
Trump’s pick to head their federal regulator, Bill Pulte, fired the majority of Fannie and Freddie’s boards in March and made himself the chair of both companies. Freddie Mac CEO Diana Reid was also dismissed.
Banker and investor Omeed Malik — a business partner of Donald Trump Jr. — joined Fannie Mae’s board in April, and Barry Habib, founder and CEO of mortgage software platform MBS Highway was appointed to the board on July 21.
Appearing on Republican strategist Roger Stone’s podcast in June, Habib said taking Fannie and Freddie public while keeping them in conservatorship might help bring interest rates down.
Barry Habib
“Instead of getting the benefit of just the cash that’s thrown off [by selling the government’s stake all at once] … they kind of can pull the money out in buckets,” Habib said.
By taking the company public, Habib told Stone, “they would then be able to sell portions of it, and have those portions that are sold off generate significant buckets of cash that could go towards things like reducing the debt and reducing the deficit, which then would actually help to bring interest rates down.”
The Trump administration is still debating whether to IPO the companies as a single entity or whether to keep them separate, the Journal reported.
Fannie Mae was created as a government agency in 1938, and Freddie Mac was formed in 1970 to compete with it.
While Fannie Mae remains the bigger company in terms of net worth and total mortgage guarantees, last year Freddie Mac backed more purchase loans ($286 billion) than its older sibling ($270 billion).
During this year’s spring homebuying season, Freddie Mac backed 206,000 purchase mortgages totaling $76 billion, with more than half (53 percent) taken out by first-time homebuyers. Fannie Mae backed $64.3 billion in purchase loans during Q2.
While Fannie Mae generated $3.3 billion in Q2 profits, that was down 26 percent from a year ago, as the mortgage giant boosted provisions for future losses by $946 million. Freddie Mac’s $2.4 billion in net income was also down 14 percent from a year ago as the company earmarked $783 million for anticipated future losses.
Fannie and Freddie net worth climbs to $166B
The mortgage giants have been profitable for the past seven years, and the first Trump administration’s decision in 2019 to discontinue the Treasury’s “sweeps” of Fannie and Freddie’s profits allowed the companies to begin rebuilding their net worths, which totalled $166 billion as of June 30.
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