Billionaire investor Bill Ackman is stoking new speculation that the Trump administration could end one of the oldest fights on Wall Street by loosening the federal government’s grip over Freddie Mac (FMCC) and Fannie Mae (FNMA).
Ackman said Monday on X that “there is a credible path” for the mortgage giants to be removed from government conservatorship and made into private companies within the next two years. That could result in an initial public offering in 2026.
“Trump likes big deals and this would be the biggest deal in history,” added Ackman, the founder of Pershing Square Capital Management. “I am confident he will get it done.”
The stocks of Freddie Mac and Fannie Mae — semi-acronyms for Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association — jumped in the hours after Ackman’s comments. They are now up 168% and 138%, respectively, since Donald Trump’s election win.
Freddie Mac and Fannie Mae both play a central role in the US housing market by purchasing mortgages from lenders and repackaging them as securities. Both fell under government control during the 2008 financial crisis as mortgage defaults soared.
Ackman is among the prominent Wall Street investors who long ago wagered that the companies would eventually be returned to private control, doing so by purchasing stock in Fannie and Freddie.
“We have owned Fannie Mae and Freddie Mac common stock for more than a decade,” Ackman said in his Monday post. “Today, they trade at or around our average cost. As such, they have not been great investments to date.”
Investors hoped the transition would happen during the first Trump administration, only to see that effort fizzle. Now Ackman and others believe a second Trump administration can get it done, even if it still takes some more time.
“It is 100%, in my mind, mechanically doable by 2027,” Mark Calabria, the former director of the Federal Housing Finance Agency (FHFA), told Yahoo Finance in November. FHFA oversees the two mortgage giants. He put the odds of such a development at 70%, saying “there’s zero chance” it will happen in 2025.
The Wall Street Journal reported in September that former Trump administration figures and bankers had been discussing privatizing the mortgage giants. Trump himself was mum on the topic while campaigning.
The argument for doing it is that selling the government’s stakes in the companies is not only written into law but could also generate billions that could be used to reduce the deficit and return money to taxpayers.
The argument against it is that it could affect access to credit in the housing market, which relies on Fannie and Freddie to fund 30-year mortgages.
Much will also depend on who runs the FHFA and the Treasury Department for Trump. The president-elect has nominated Scott Bessent to be Treasury secretary, but that pick still needs to be confirmed by the Senate.
It has been a long, uneven ride for hedge funds that began wagering on a privatization of Fannie and Freddie after the Treasury Department injected a total of $189 billion into the institutions.
The federal government altered the terms of its takeover agreement in 2012, as Fannie and Freddie returned to profitability, by sweeping all net profits of those institutions into the Treasury Department as dividends.
Also read: What is HMPV? China steps up emergency measures amid new virus outbreak
That hurt the bets taken by Wall Street investors. The value of Fannie and Freddie’s common stock plummeted and shareholder lawsuits followed.
There was new hope once Trump came into office in 2017 that Wall Street’s long-running bet would pay off, with former Treasury Secretary Steve Mnuchin and Calabria supporting returning the companies to private hands. The administration released a report in September 2019 that offered a plan for returning them to private ownership with a government backstop.
“Had it not been for the pandemic, you know, we would have got them out of conservatorship and back on their feet,” Calabria said.
Given the work done by the last Trump administration, the new one could go back to that Trump 1.0 framework for how privatizing the mortgage giants could work, complete with the fee paid to retain future government support.
I am often asked for stock recommendations, but generally don’t share individual names unless I believe the risk versus the reward is extraordinarily compelling.
— Bill Ackman (@BillAckman) December 30, 2024
As we look toward 2025, one investment in our portfolio stands out for large asymmetric upside versus downside so I…
Ackman is optimistic something will be worked out, arguing it would help the government along with his own bets. “A successful emergence of Fannie and Freddie from conservatorship should generate more than $300 billion of additional profits to the Federal government (this is on top of the $301 billion of cash distributions already paid to the Treasury) while removing ~$8 trillion of liabilities from our government’s balance sheet,” Ackman said in his Monday post on X.
He also offered a word of caution. “There remains a high degree of uncertainty about the ultimate outcome so you should limit your exposure to what you can afford to lose if you choose to invest,” he said.