Bill Ackman, the billionaire investor and founder of Pershing Square Capital Management, recently reignited speculation about the potential privatization of mortgage giants Fannie Mae and Freddie Mac under a second Trump administration. Ackman’s assertion that a “credible path” exists for these entities to exit government conservatorship and go public by 2026 has sent ripples through the financial world.
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A History of Government Intervention and Private Investment
Fannie Mae and Freddie Mac, key players in the US housing market, were placed under government control during the 2008 financial crisis. Their role involves purchasing mortgages from lenders and repackaging them into securities, ensuring a steady flow of capital for home loans. Ackman, a long-term investor in both companies, believes a second Trump term could finally lead to their privatization, a move he anticipates would be “the biggest deal in history.”
Bill Ackman, CEO of Pershing Square Capital. REUTERS/Mike Blake
This isn’t the first time such hopes have been raised. Investor optimism surged during Trump’s initial presidency but ultimately waned as privatization efforts stalled. However, recent reports indicate renewed discussions among former Trump officials and bankers regarding this possibility. Mark Calabria, former director of the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, estimated a 70% chance of privatization by 2027.
The Pros and Cons of Privatization
Proponents of privatization argue that selling the government’s stake in Fannie and Freddie aligns with existing legislation and could generate billions in revenue, potentially reducing the national deficit. They contend that a return to private control would enhance efficiency and innovation.
Stock chart of Fannie Mae
Conversely, critics express concerns about potential disruptions to the housing market. They argue that privatization could restrict access to credit, particularly for 30-year mortgages, which heavily rely on Fannie and Freddie’s funding.
The Path Forward Remains Uncertain
The future of Fannie and Freddie hinges significantly on the leadership at FHFA and the Treasury Department. While Scott Bessent is Trump’s nominee for Treasury Secretary, Senate confirmation is still pending. The chosen officials will play a crucial role in shaping any privatization strategy.
Past attempts to overhaul Fannie and Freddie, including a 2019 plan proposing increased capital reserves and a phased public offering, highlight the complexities involved. The COVID-19 pandemic further complicated matters, derailing prior progress.
Scott Bessent, President-elect Donald Trump’s nominee for Treasury secretary.
While Ackman remains optimistic, acknowledging the potential for significant government revenue and balance sheet improvement, he also advises caution. The uncertainty surrounding the outcome necessitates a prudent investment approach. The potential rewards are substantial, but the risks remain significant. Whether a second Trump administration can successfully navigate these challenges and finally privatize Fannie Mae and Freddie Mac remains to be seen.
