Trump rings the opening bell on the trading floor of the New York Stock Exchange (NYSE) on December 12, 2024 after being named TIME’s “Person of the Year.”
Spencer Platt/Getty Images
The Trump administration is teeing up what could be the biggest shakeup in U.S. housing finance since the 2008 crisis—a pair of IPOs that might value Fannie Mae and Freddie Mac at a combined $500 billion. The plan, which was first reported by The Wall Street Journal and is still being finalized by the administration, would see the federal government sell between 5% and 15% of each company, potentially raising about $30 billion in what would be one of the largest stock offerings in American history. Yet behind the fanfare lies a precarious gamble on institutions still tethered to taxpayer support and whose profitability is largely cushioned by an implicit government guarantee.
Senior administration officials have in recent days confirmed the plans are far along, though crucial structural decisions—such as whether to list the two separately or together—remain unresolved. President Trump himself has signaled his intention to proceed with the listings this year: “I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES,” he wrote on social media last week. On Saturday, he posted an edited picture of himself ringing the opening bell at the NYSE for a hypothetical, combined entity called the Great American Mortgage Corporation trading under the ticker “MAGA.”
The Treasury—which currently holds the bulk of both government-sponsored enterprises (GSEs) equity—could release new shares, sell existing ones, or blend both strategies to create liquidity. Wall Street heavyweights such as JPMorgan, Goldman Sachs, Citigroup, and Bank of America have reportedly been asked to advise on pricing and structure.
The history of Fannie Mae and Freddie Mac is a cautionary tale. Fannie’s roots stretch back to 1938, Freddie’s to 1970; Both were designed to keep mortgage credit flowing by securitizing and guaranteeing home loans. Their business model—buying mortgages from lenders, bundling them into mortgage-backed securities and guaranteeing payment to investors—helped lower borrowing costs for generations of Americans. During the mid-2000s housing boom, both ramped up exposure to riskier loans and loosened underwriting standards, leaving them vulnerable when home prices crashed. During the housing bubble the top executives of these quasi-governmental agencies benefited from compensation packages in the tens of millions. By September 2008, the Federal Housing Finance Agency (FHFA) had placed them into conservatorship after a combined $187 billion Treasury rescue, wiping out most private shareholder value.
In the years since, the GSEs have returned to profitability, paying dividends that exceeded the bailout amount. Yet they have remained under government control, their retained earnings capped for much of the past decade until capital buffers were gradually rebuilt. FHFA’s 2024 Annual Report to Congress shows that by year-end, Fannie Mae’s total equity had grown $17 billion to $94.7 billion, while Freddie Mac’s climbed 24.8% to $59.6 billion.
In a brief published earlier this year by Jim Parrott of the Urban Institute, a Washington, D.C.-based think tank, and Mark Zandi, chief economist of Moody’s Analytics, the two highlighted the importance of keeping the implicit federal guarantee post-IPO. “Critical to the rating agencies and the Fed is not that the GSEs posed little risk, but that they enjoyed the unlimited backing of the U.S. government,” they write, warning that without that support, funding costs could climb sharply—driving up mortgage rates by 0.6 to 0.9 percentage points as well as shrinking credit access. The pair go on to caution that ending conservatorship without a clear legislative or financial framework risks delivering “no value,” and could leave the system “less liquid and stable.”
“We believe it’s essential for the government to retain the explicit government guarantee if they pursue privatization, which could take years to implement,” wrote Lawrence Gillum, chief fixed income Strategist for LPL Financial. “Removing the guarantee would disrupt both markets and make housing even less affordable.”
A $30 billion stock sale by the Federal government would provide a one-time boost to Treasury’s coffers but it would only represent an estimated 1.6% slice of the current fiscal year’s projected $1.9 trillion deficit. After the sale it is likely that the Federal government would still own 85% to 95% of the government sponsored mortgage companies and thus benefit from any appreciation in its share price. The windfall would also extend beyond the public purse.
Hedge fund billionaires such as Bill Ackman and John Paulson, who built large positions in the mortgage giants years ago betting on their return to the market, could reap outsized rewards if the IPOs hit their targets. Ackman, who has long advocated for the privatization of the two GSEs, owns roughly 10% of the common stock of both Fannie and Freddie through his fund, Pershing Square Capital Management.
Ackman’s firm first invested in Fannie and Freddie common stock in late 2013, roughly five years after they were put under government conservatorship during the financial crisis. His cost basis for each averaged just over $2 per share. Today, Freddie Mac and Fannie Mae currently trade at $9 per share and $11.50 per share, respectively. According to previous filings from his firm (Pershing Square stopped disclosing these specific holdings in regular filings several years ago), he owned 115.5 million shares of Fannie and 63.5 million shares of Freddie—that stake today would be worth roughly $1.8 billion.
Wall Street underwriters also stand to collect millions in advisory fees. Banks like Wells Fargo and JPMorgan Chase were top originators for Freddie and Fannie last year, while institutions like BlackRock and PIMCO are significant holders of mortgage backed securities.
If the Trump administration pulls it off, the planned Fannie and Freddie offerings could rank among the most ambitious privatizations in modern U.S. history. Still, trying to privatize much of the nation’s mortgage infrastructure during the worst housing affordability crisis in a generation will be no easy task, as critics have pointed out. The current administration will no doubt need to be more specific and methodical than they have been so far if they want to avoid losing investor confidence and causing a shock to the financial system.
