Investors are growing increasingly optimistic that a second Trump administration could pave the way for the long-debated privatization of mortgage giants Fannie Mae and Freddie Mac, resolving one of Wall Street’s most enduring conflicts.
Since Donald Trump’s election win, the stocks of both Fannie Mae and Freddie Mac—semi-acronyms for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation—have soared by 116% and 143%, respectively, according to data from Yahoo Finance. These two entities play a crucial role in the U.S. housing market by buying mortgages from lenders and turning them into securities. They were placed under government conservatorship during the 2008 financial crisis as defaults on mortgages skyrocketed.
High-profile Wall Street investors like John Paulson and Bill Ackman had long bet on the eventual return of these companies to private ownership, purchasing both common and preferred stock in hopes of profiting when the government finally relinquished control. Their hopes were high during Trump’s first term, but the push ultimately faltered. Now, with a potential second term for Trump, many believe that privatization may still be within reach—albeit with some additional time needed.
Mark Calabria, the former director of the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, is confident that privatization is “mechanically doable by 2027,” estimating the odds of success at 70%. He ruled out 2025 as a realistic timeframe, stating, “there’s zero chance” it would happen that soon.
Despite Trump’s silence on the matter during his campaign, reports surfaced in September suggesting that former Trump administration officials and bankers were revisiting the idea of privatizing the mortgage giants. Proponents argue that selling the government’s stake in these companies is not only legally required but could also generate billions of dollars, which could be used to reduce the deficit or returned to taxpayers. Opponents, however, warn that such a move could disrupt access to credit in the housing market, which heavily depends on Fannie and Freddie to fund long-term mortgages.
A key factor in any potential privatization will be who Trump selects to lead the FHFA and the Treasury Department. Hedge fund manager Paulson, known for profiting during the 2008 financial crisis by betting against subprime mortgages, had been rumored to be in the running for Treasury Secretary. However, he recently stated that his financial commitments would prevent him from accepting such a position.
Wall Street’s journey to privatization began in earnest after the Treasury Department injected $189 billion into Fannie and Freddie during the financial crisis. The government altered the terms of its agreement in 2012, sweeping all of the companies’ net profits into the Treasury as dividends, which significantly diminished the value of shares and led to shareholder lawsuits.
Hope was rekindled when Trump took office in 2017, with Treasury Secretary Steven Mnuchin and Calabria supporting the push for privatization. The administration unveiled a plan in 2019 to restore the companies to private ownership, which included bolstering their capital reserves and eventually selling the government’s stake in a large public offering. However, the pandemic derailed those plans.
Calabria remains optimistic, noting that had it not been for the pandemic, the companies might have been able to exit conservatorship and regain their footing. With the groundwork laid in the previous administration, the new administration could revisit the original privatization framework, potentially including a fee structure to maintain a government backstop.
Former Freddie Mac executive Edward Golding, who also served as head of the Federal Housing Administration under the Obama administration, sees potential benefits in privatization, particularly in “restoring the innovation and the entrepreneurial spirit” of the institutions. However, he cautioned that handing over control to private entities could have unintended consequences for the housing market, warning that such a move could exacerbate the duopoly power Fannie and Freddie currently hold.
As investors eagerly await developments, the future of these mortgage giants remains uncertain, with Wall Street betting that a second Trump administration could finally resolve the long-running debate.
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