Inman News
Promise that the government will maintain ‘implicit guarantees’ of the companies’ obligations suggests that what Trump has in mind is monetization, not privatization
President Trump’s plans for mortgage giants Fannie Mae and Freddie Mac are generating more speculation following his promise that the government will maintain implicit guarantees of the companies’ obligations.
Like a similar post last week, Trump’s latest Truth Social post on “TAKING THESE AMAZING COMPANIES PUBLIC” initially sent shares in Fannie and Freddie soaring Wednesday morning.
That was before Trump’s pick to head Fannie and Freddie’s federal regulator, Bill Pulte, appeared on CNBC and poured some cold water on existing investors’ hopes of turning big profits on the deal.
“I would point you to his tweet,” Pulte said. “He very explicitly says that he wants to take them public. He did not say that he wants to privatize them.”
Fannie and Freddie have been in government conservatorship since 2008, when the government took a large stake in the companies to keep them afloat during the 2007-2009 housing crash and Great Recession.
While presidents including Barack Obama have made releasing Fannie and Freddie from conservatorship a goal, the two big questions have been:
- How to restructure Fannie and Freddie without sending mortgage rates soaring
- How to protect taxpayers if the companies run into trouble again
By providing assurances that the government will still provide implicit guarantees to Fannie and Freddie if they run into trouble again, Trump seemed to be addressing the first concern — that mortgage rates could go up if Fannie and Freddie were privatized.
Fannie and Freddie don’t make loans themselves, but provide guarantees to investors who buy mortgage-backed securities (MBS) that fund most U.S. home loans. Those guarantees mean investors are willing to accept yields that aren’t much better than what they’d get if they invested in 10-year Treasurys.
But if the government would still act as a backstop for the mortgage giants, it’s not clear how taxpayers would be any better protected than they are today.
“Interestingly, the President has not said anything that he wants to end conservatorship,” Pulte said. “We’re studying actually, potentially keeping it in conservatorship and taking it public.”
Fannie and Freddie are already publicly traded on an over-the-counter market. Investors who own the companies’ common stock — including billionaire Bill Ackman — are hoping the government will buy them out.
The government could invest its stake in Fannie and Freddie into a sovereign wealth fund, and raise cash by issuing preferred shares that pay dividends. That plan could also give MBS investors confidence that the U.S. stands behind the companies’ guarantees.
Pulte did not have a clear answer for CNBC’s Sara Eisen when she asked, “Why would you want to take the companies public? How does it help homeowners?”
Pulte did say that one reason Trump has more leeway to control Fannie and Freddie’s fate is a 2021 Supreme Court decision that expanded the president’s power to fire the mortgage giants’ regulator, the Federal Housing Finance Agency (FHFA), without cause.
After Trump appointed Pulte FHFA director in March, Pulte fired 14 members of Fannie and Freddie’s boards and appointed himself the chair of both companies’ boards.
“So President Trump now has control over Federal Housing Finance Agency as well as U.S. Treasury, and this opens up all kinds of ideas,” Pulte said. “So, whether the president decides to sell a small piece or what have you — that’s entirely up to the president. But I think the opportunities are endless.”
Peter Schiff, chief economist for Euro Pacific Asset Management, said that Trump’s assurance that the government’s implicit guarantees would remain in place amounts to an explicit promise.
“Of all the policy mistakes Trump has made as President, taking Fannie and Freddie public with explicit government guarantees would be the worst so far,” Schiff posted on X.
An explicit guarantee would allow Fannie and Freddie “to make as much money as possible by engaging in the most risky behavior possible, leaving the taxpayers left holding the bag when those risks inevitably result in another bankruptcy,” Schiff wrote. “Private profits and public losses are not capitalism. It’s the worst form of cronyism.”
Real estate industry groups like the National Association of Realtors and the Mortgage Bankers Association have proposed a “utility-style” model for Fannie and Freddie that would provide an explicit guarantee, but limit their risks and profits.