The restructuring Trump may need for Fannie Mae, Freddie Mac

Yahoo

22-05-2025

President Trump is giving "very serious consideration" to bringing mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC) — or the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation — public, according to the president's latest social media posting.
Whalen Global Advisors Chairman Chris Whalen shares why he thinks the administration is bringing up spinning off these government-sponsored enterprises (GSEs) now.
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The president wants again, reiterating the desire to privatize Fannie and Freddie. Now, that's the talk has been around for years. As you are well aware and you've written a lot about, the devils in the details. So, what do the details need to be?
The reason they're talking about this is they need the cash in order to make their tax cuts and their budget reconciliation bill work. How do you get cash from Fannie and Freddie? When they take them out at the end of the day, say two years from now, the US taxpayers going to own 98% of Fannie and Freddie. And what I've written is I said, look, you need cash, buy out the public common shareholders. Get rid of them. Leave the United States as the sole voting shareholder in the GSCs and issue a lot of preferred. You could create a new asset class around GSC preferred, single digit coupon. And guess what? You could give the treasury all the cash they need. And the other thing, Julie, remember, if they try and do a public offering with Fannie and Freddie common stock, they may take a loss. They may not be able to get par value for it. So if I want to give them their cash and get the government out as quickly as possible, I think they need to restructure both companies, buy out the common shareholders, and maybe offer a buyout to the existing preferred shareholders. Give them a little deal. They've been waiting for 15 years.
Well, Bill Ackman's been pushing for this, right?
Yeah, but we don't need to create a play thing for hedge funds. There's no point in having private common equity capital in the GSCs. It does not affect the rating. The only thing that can backstop the GSCs is the United States. So for example, if we take the issuers private, we still have to have treasury guarantee the mortgage back securities. Otherwise it does not work. You remember I worked at Kroll bond ratings. It doesn't work. So if Fannie and Freddie have to pay treasury, say 10, 12 basis points a year to cover their bonds, they may have to increase their guarantee fees. So there are a lot of pieces here that are going to have to be worked on. And they're just getting started. They did a lot of work on this in Trump one. It's in the closet. They got to get those documents out and then they got to find somebody to lead this process forward.