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The Trump administration has studied the possibility of turning Fannie Mae and Freddie Mac into public companies while keeping them under conservatorship — one of several alternatives still under consideration, according to a Bloomberg report published Tuesday.
The primary goal of the administration is to reduce the U.S. budget deficit and avoid any increase in mortgage rates — an outcome that could occur if conservatorship ends due to the loss of the government guarantee behind these entities.
This represents a shift in focus from Trump’s first term, during which he aimed to reduce government involvement in the mortgage market.
The idea was recently floated by Federal Housing Finance Agency (FHFA) Director Bill Pulte in media interviews. An agency spokesperson confirmed it to Bloomberg, saying that studies are underway on how to take the companies public, including the option of doing so while they remain in conservatorship.
“In any scenario, we will ensure the mortgage-backed securities market is safe and sound and that there is no upward pressure on rates,” the spokesperson told Bloomberg.
In a Fox Business interview, Pulte said, “Maybe there’s a way to take these companies public and use these companies for what they are, which are assets for the American people.” On CNBC, he added that Trump “explicitly says he wants to take them public; he did not say he wants to privatize them.”
One downside to this approach is that investors may be unwilling to pay a premium for companies in which the government retains a large stake — an ironic outcome given the government’s goal of raising cash to reduce the deficit.
In a recent report, a group of JPMorgan analysts said they are still a “little flummoxed by Pulte’s comments.” If the goal is to sell off the Treasury stake, potentially raising hundreds of billions of dollars to pay down the U.S. debt, “we’d think that private investors would want the government’s involvement to be somewhat lighter than today,” they said.
“Utility-like regulation could be on the table, but a continued dominant government stake in the GSEs might raise concerns about policy changes under a (potential) new Administration,” they continued. “An exit from conservatorship could also be viewed as a way to reduce the risk of a political about-face later,” the analysts wrote.
The analysts noted one potential option could be for the government to first convert its senior preferred stock to common equity, exercise its warrants and gradually sell off its majority stake in the private market over time. This would reduce the need for a large equity raise in the near term.
Trump has mentioned twice on Truth Social the possibility of releasing the government-sponsored enterprises (GSEs). On May 21, the president said he was giving “serious consideration” to doing so. And on May 27, he said the federal government would continue to provide an implicit guarantee.
Industry executives have supported the administration’s focus on the GSEs while not necessarily advocating for an immediate release from conservatorship. Mat Ishbia, the president and CEO of leading lender United Wholesale Mortgage (UWM), said the GSEs acting “private”‘ while remaining in conservatorship could be “the best of both worlds.”
“Fannie Mae and Freddie Mac competing, innovating and doing different things with new leadership from Director Pulte is a big deal, and we’re already starting to see some of those positive things happening right now,” Ishbia said in a video posted to YouTube on Monday.
