Trump aims to privatize Fannie Mae and Freddie Mac for trillions

In recent months, Donald Trump has indicated plans to take mortgage giants Fannie Mae and Freddie Mac public, ending a longstanding federal conservatorship that has lasted for almost two decades. The two companies have been crucial to America's housing finance system by providing liquidity to the mortgage market. The move is seen as a way to raise substantial funds, with billionaire investor Bill Ackman advocating for the exit of these companies from conservatorship, where they had been placed following the financial crisis of 2008. Ackman, whose hedge fund, Pershing Square Capital, holds significant shares in both companies, has long argued that Fannie and Freddie have repaid the debt incurred during their bailout. The potential public offering raises concerns surrounding homebuyers potentially facing higher borrowing costs. While Trump has proposed that the U.S. government will retain implicit guarantees in any transition, financial experts warn that a release from conservatorship without proper safeguards could lack investor confidence, thus destabilizing the multitrillion-dollar mortgage market. As shares of both companies surged almost 500% following Trump’s election, industry analysts suggest that the implications of such a privatization could significantly affect lower-income borrowers who may be subject to higher rates without a government guarantee in place. Moreover, the government maintains a preferential stake over Fannie and Freddie, meaning that before any profits can be distributed to other shareholders, the companies must clear a $190 billion debt obligation to the U.S. Treasury. This condition creates uncertainty regarding the actual value of hedge funds’ investments in both companies and whether their shareholders would see returns post-privatization. Consequently, the landscape around Fannie Mae and Freddie Mac remains contentious, with conflicting opinions about the best path forward. Ultimately, the proposed public offering could reshape the entire mortgage lending landscape in the U.S., as any changes to the government-supported framework could lead to unforeseen ramifications. Consequently, stakeholders in this multitrillion-dollar market are on high alert as the plan progresses under Trump's administration.