President Donald Trump announced on Truth Social that he is contemplating taking Fannie Mae and Freddie Mac public, which resulted in a significant increase in their share prices.
Market Reaction
- Shares of Fannie Mae rose 2.5% on Wednesday.
- Shares of Freddie Mac jumped 6%, marking their largest daily gains this month.
- Analysts at Pimco estimate that shares in both companies could surge another 20-30% if privatized, potentially generating tens of billions of dollars for U.S. taxpayers.
Concerns Over Privatization
Critics warn that privatizing the mortgage giants could lead to higher mortgage rates for consumers, as private investors may charge more interest than the current taxpayer-backed rates.
Legislative Context
The White House has not commented on whether President Joe Biden has discussed plans with Treasury Secretary Janet Yellen or other officials regarding the end of conservatorship over Fannie Mae and Freddie Mac.
Currently, lawmakers are debating major legislation aimed at reducing inflation through spending cuts, which may reduce the urgency to end conservatorships in the near future.
Background on Fannie Mae and Freddie Mac
- Fannie Mae and Freddie Mac have been under government control since 2008 after receiving $187 billion in bailout funds during the financial crisis.
- These companies provide financing for nearly half of new home purchases in the U.S. through guarantees on mortgages issued by banks and other lenders.
Trump’s Statement
In a statement posted late Tuesday night, Trump said:
"I am thinking very seriously about making FANNIE MAE & FREDDIE MAC PUBLIC again."
Industry Insights
Fannie Mae’s CEO, Hugh Frater, indicated that it is too early to determine if the company will return profits to shareholders once it exits conservatorship, but he believes it is the right course of action. He also expressed confidence in the company’s profitability even if interest rates rise further.
Freddie Mac’s CEO, David Kellermann, did not comment on the potential return of profits to shareholders but emphasized that the company is diligently working towards exiting its current status.
Political Discussions
- A spokesperson for Senator Chuck Grassley (R-Iowa) mentioned that Grassley has had multiple discussions with Treasury Secretary Janet Yellen regarding housing finance reform.
- Senator Elizabeth Warren (D-Massachusetts) continues to advocate for consumer protections in any future reforms and has introduced legislation requiring Congressional approval for any plans to sell off assets owned by the government-sponsored enterprises (GSEs).
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