Trump Allies Are Working on Plans to Privatize Fannie and Freddie
A deal would call for the government to try to sell a chunk of its holdings in the mortgage giants to investors, including sovereign-wealth funds
Donald Trump’s allies want once again to try to untie the Gordian knot of the mortgage market: what to do with Fannie Mae and Freddie Mac.
Former Trump administration figures and bankers have been discussing plans on ending U.S. government control of the mortgage-finance giants should Trump win the presidential election, according to people familiar with the matter. The talks have been under way since at least this past spring and include reaching out to investment managers for advice on how to get the deal done.
Trump confidants including Larry Kudlow, former director of the National Economic Council, and John McEntee, former director of the White House presidential personnel office, are among those involved, the people said.
“The [former] president himself has never said anything about this throughout the campaign,” a Trump campaign spokeswoman said.
The government’s stakes in Fannie and Freddie could be valued at hundreds of billions of dollars, bankers estimate. That could allow the government to sell more than $100 billion of securities in one swoop, some bankers say. That would top the biggest stock and bond offerings in history and require interest from the largest investors, including sovereign-wealth funds.
Earlier efforts to free Fannie and Freddie from government control, including during Trump’s presidency, failed. Critics worried about the companies’ safety and the impact on the housing market, which relies on their backing. There were also doubts about whether bankers could actually drum up enough money.
A top focus of the talks is ensuring that the companies will be well capitalized so as to not pose a risk to the U.S. housing market. The role of Fannie and Freddie in funding 30-year mortgages, the foundation of the U.S. housing market, has hinged on the government’s full support.
The Trump allies have discussed having the Treasury Department partially back a certain amount of Fannie and Freddie loans through a so-called standby guarantee, the people said, similar to the way the Federal Deposit Insurance Corp. backs deposits below a certain threshold at banks.
Fannie and Freddie purchase and securitize a huge portion of loans in the U.S. residential and commercial mortgage markets. Nearly 40% of the $435 billion of residential loans originated in the second quarter were sold to Fannie or Freddie, according to Inside Mortgage Finance. The two firms owned or guaranteed roughly 40% of the $2.2 trillion in multifamily mortgage debt as of September 2023, according to estimates from their latest annual filings.
Fannie and Freddie operated with implicit government support when they were created but have been under full government control for 16 years. After a 2008 rescue, the Treasury Department took warrants to purchase about 80% of common stock at Fannie and Freddie, as well as senior preferred shares. Other investors can own junior preferred shares, which used to pay a dividend, or common stock.
Trump’s allies and other Republicans view privatizing the firms—or putting nongovernmental shareholders in control—as a way to reduce the country’s deficit and return money to taxpayers.
Opponents of privatization have said that it would decrease access to credit for home buyers and increase the risk for taxpayers.
Different paths being discussed
Trump’s allies are assessing different paths to privatization. One includes bypassing congressional approval and instead proceeding through the Federal Housing Finance Agency, which oversees Fannie and Freddie, and the Treasury Department, the people said.
The FHFA would be key to any plan. It sets the capital requirements and other standards for Fannie and Freddie.
The allies are discussing how to divide any newly found value between the government and other shareholders and avoid drawn-out legal battles.
The preferred and common shares had rallied after Trump’s 2016 election and his 2019 proposals to privatize the companies, only to fall during the Biden administration.
Big investors could profit
Some prominent hedge-fund investors, and Trump backers, have for years been pushing for Fannie and Freddie to be freed from government ownership. Depending on the plan, they could stand to profit handsomely.
Bill Ackman’s Pershing Square owns a roughly 10% stake in the common shares of both Fannie and Freddie.
John Paulson, who is viewed as a potential pick for Treasury secretary under Trump, owns a sizable investment in the preferred shares.
Both Paulson and Ackman have endorsed Trump for president.
“The conservatorship was always intended to be temporary so it makes sense that policymakers release them from conservatorship now that reforms are complete,” a Paulson spokesman said. “The government will be the biggest winner in a release of [Fannie and Freddie].”