
Hedge funds could make billions from a Fannie Mae and Freddie Mac spin-off
A long-held stake by a handful of hedge funds may finally yield returns under the Trump administration, but it risks sending shockwaves through America's $12 trillion mortgage market.
Last month, President Donald Trump said he had plans to take mortgage financing giants Fannie Mae and Freddie Mac public. Such a move would end 17 years of federal government conservatorship over the two companies, which have played a central role in America's housing finance system by providing liquidity to the mortgage market.
Some experts warn that severing Fannie and Freddie from government control could raise mortgage rates and restrict access to popular mortgage products — like the 30-year fixed loan — at a time when housing affordability remains out of reach for many Americans. Last week, Senate Democrats sent a letter to William Pulte, who leads the Federal Housing Finance Agency, asking him to pause efforts to take the two public, citing the risk that it could increase costs for homebuyers.
A group of investors has been anxiously awaiting the day Fannie and Freddie return to the public markets. None has been more vocal than billionaire investor Bill Ackman, whose hedge fund, Pershing Square Capital, is one of the largest holders of common shares in Fannie and Freddie.
'We have been leading the charge on behalf of all (Fannie and Freddie) shareholders to help them to exit from conservatorship,' Ackman posted on social media on Tuesday. A representative for Ackman pointed to his commentary on social media when asked about Pershing Square's current stake.
Ackman isn't the only hedge fund investor who bet on Fannie and Freddie after the government seized them during the 2008 financial crisis, when both were on the brink of collapse.
Other investors, including billionaire hedge fund managers Carl Icahn and John Paulson, have previously disclosed stakes in Fannie and Freddie, though neither responded to CNN's request for information about the current size of their stakes.
Taking the two mortgage giants public may be challenging, said Lori Goodman, a fellow at the Urban Institute, who has studied the history of Fannie Mae and Freddie Mac.
Together, Fannie and Freddie's total net worth is more than $150 billion. Goodman estimates any public offering of Fannie and Freddie shares would likely eclipse the largest IPO in history: state-owned oil company Saudi Aramco, which raised $26 billion when it went public in 2019.
'This is an enormously complicated undertaking,' she said.
Fannie and Freddie were never meant to permanently remain in a conservatorship arrangement, but Trump failed in an initial attempt to spin them off during his first administration.
Investors are wagering that his next try will be successful. Shares of Fannie (FNMA) and Freddie (FMCC), which trade over the counter, surged after Trump was elected in November. In the last year, shares of Fannie's stock are up nearly 500% and Freddie's gained nearly 400%.
Fannie and Freddie essentially grease the wheels of America's home lending market, one of the world's largest, by buying mortgages from lenders and repackaging them for investors. This helps enable a reliable flow of money to mortgage lenders, allowing them to offer more affordable rates to would-be homebuyers. Today, the mortgage giants guarantee more than half of America's mortgages, according to the FHFA.
Goodman said she expects that any plan to take the companies public would lead to higher borrowing costs for homebuyers.
The risk is that spinning off Fannie and Freddie could unsettle investors without the assurance of a government backstop, like the one provided during the 2008 crisis. In response, lenders might demand higher rates, especially from lower-income borrowers.
'You've got a trillion-dollar mortgage-backed securities market, both single-family and multi-family, that they're a critical part of,' Goodman said of Fannie and Freddie. 'You can't tamper with the government guarantee without upsetting that huge market.'
Last month, Trump addressed the issue of the government's guarantee, writing on social media: 'I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President.'
But a social media post might not be enough to assure investors in the multitrillion-dollar mortgage-backed securities market, Goodman said. It is possible that Fannie and Freddie could pay a fee to assure the government's guarantee long-term, but that cost would also likely be passed on to homebuyers, she added.
Any rise in mortgage rates would likely be unwelcome news to prospective homebuyers, who have been grappling with elevated borrowing costs since the Federal Reserve hiked its benchmark interest rate in 2022 to combat inflation. Mortgage rates, which track the 10-year Treasury yield, have recently been climbing again as growing concerns about the national debt and Trump's tariff policy have fueled fears of an economic slowdown.
Democrats have criticized the Trump administration's plans to overhaul Fannie and Freddie. Last week's letter to Pulte, the Federal Housing Finance Agency director, accused the Trump administration of being primarily motivated by 'rewarding President Trump's billionaire campaign contributors.'
'We have serious concerns that you plan to make significant changes to the Enterprises in a way that would put investor profits over the homes of millions of Americans,' Senate Democrats wrote in the letter.
There is also the question of whether it makes sense to release Fannie and Freddie into the public market in their current form, said Norbert Michel, a director at the Cato Institute, a libertarian think tank.
'This system of privatized profit and socialized loss is what led to the 2008 crisis in the first place,' Michel said. 'Under no circumstances should they be released as they were prior.'
'That was a bad system. We should not have that system,' he added.
It remains unclear what exactly the Trump administration plans to do with Fannie and Freddie, which means it's also unclear whether hedge fund stakes, such as Ackman's, are worth anything at all.
That's because, as part of the conservatorship agreement, the US Treasury owns a preferential stake in Fannie and Freddie that takes priority over all other shareholders: Fannie and Freddie must pay back a $190 billion debt to the government for its bailout assistance before it can exit its conservatorship, which would prevent other shareholders from making a profit.
Ackman has advocated for the removal of the government's preferred shares, arguing that Fannie and Freddie have already paid back more money than it cost to bail them out. Since entering conservatorship, the two companies have paid $301 billion in dividends to the Treasury.
'(Fannie and Freddie) shareholders don't have their hands out. The opposite is the case,' Ackman wrote last week on social media. '(Fannie and Freddie) shareholders are simply seeking credit for payments that have already been made to the government so that a release from conservatorship can occur.'
But financial analysts say investing in Fannie and Freddie is risky.
'At the moment, on an economic basis, the private shareholders' equity is about negative $200 billion, because that is what Fannie and Freddie owe the government,' said Bose George, a managing director at Keefe, Bruyette & Woods, a boutique investment banking company. 'Owning the shares is speculative because you're making an assumption that the government is going to forgive this debt.'
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


CBS News
13 minutes ago
- CBS News
Trump and Hegseth to visit Fort Bragg as they send troops to Los Angeles
Washington — President Trump and Defense Secretary Pete Hegseth are visiting Fort Bragg, the nation's largest military installation, on Tuesday, after sending the National Guard and U.S. Marines to respond to protests in Los Angeles. Members of the Marine Corps arrived in the greater Los Angeles area Tuesday, a defense official told CBS News, after the military activated about 700 active-duty Marines Monday. The Pentagon said the Marines would "seamlessly integrate" with National Guard troops to protect "federal personnel and federal property." There are 2,100 members of the California National Guard now on location in the greater Los Angeles area, operating in Los Angeles, Paramount and Compton. The president is expected to speak at Fort Bragg in North Carolina around 4 p.m. Hegseth is heading to the military base after testifying on Capitol Hill. "Will be going to Fort Bragg today. Big speech, amazing crowd! See you later!!!" Mr. Trump wrote on Truth Social Tuesday morning. The president claimed Tuesday morning that Los Angeles would be "would be burning to the ground right now," if not for his actions to federalize the National Guard. A memorandum the president signed Saturday said the troops are authorized to protect Immigration and Customs Enforcement officials and other federal law enforcement officials. He invoked Title 10, the U.S. code governing use of the armed forces, allowing the National Guard to come into LA in a supporting role. On Monday, California Gov. Gavin Newsom sued the president and Hegseth over the decision to deploy the National Guard to the state against Newsom's wishes. Newsom argued that Title 10 "has been invoked on its own only once before and for highly unusual circumstances not presented here." He pointed to the text of the U.S. code, which states that when the president calls a state's National Guard into federal service under Title 10, "those orders 'shall be issued through the governors of the States.'" Hegseth, Newsom maintained, "unlawfully bypassed the Governor of California, issuing an order that by statute must go through him." "At no point in the past three days has there been a rebellion or an insurrection," the lawsuit reads. "Nor have these protests risen to the level of protests or riots that Los Angeles and other major cities have seen at points in the past, including in recent years."


Gizmodo
16 minutes ago
- Gizmodo
SanDisk 2TB Extreme Portable SSD Hits All-Time New Low Price, Backed by 4.6-Stars and Nearly 80K Reviews
Keeping your most important files safe can be a bit of a hassle if you have multiple computers and multiple hard drives. Plus, traditional hard drives can be slow, bulky, and vulnerable to bumps and drops. Not exactly the kind of risks anyone wants to take when it comes to managing data. That's where solid-state drives (SSDs), especially those like this SanDisk portable SSD, come in. And if you don't already have one, it might be time that you changed that, especially since you can save some cash right now. See at Amazon Right now, you can check out Amazon to get the SanDisk 2TB Extreme Portable SSD for just $145, down from its usual price of $210. That's $65 off and a discount of 31%. Super storage at an even better price This hard drive is perfect for anyone on the go or those who like to make sure they've got all their important files with them at all times. That's because it's fast and reliable. It's compact enough to slip into your pocket, and its rubberized exterior gives it a grip-friendly, shock-resistant finish that doesn't feel delicate. According to SanDisk, it's also drop-rated up to three meters and boasts an IP65 rating for water and dust resistance. In other words, this drive can take a licking and keep on ticking. It has up to 1,050MB/s read and 1,000MB/s write speeds, so you get near-instant file transfers, assuming your device supports USB-C 3.2 Gen 2 or better. That makes it perfect for moving large 4K videos, photo libraries, or other large to enormous files without waiting around. And because it's bus-powered, you won't need to fumble with external power cords or bulky adapters. You can just plug it in and let it ride. It's compatible with Windows, macOS, and other devices, and has a five-year limited warranty. For many, it's the kind of tool that just becomes essential over time. You might start using it for work, then travel, then everyday backups, and suddenly you're wondering how you ever managed without it. And for good reason. It's super handy to have around! Since you can get it for under $200 right now, you definitely should. Don't wait around, though, as it will likely go out of stock. Whether you're upgrading your current setup or investing in better protection for your digital files, this is a smart move that could pay off the next time you need fast, reliable storage. Even if it's just a bunch of pictures of you and your dog. See at Amazon


TechCrunch
18 minutes ago
- TechCrunch
Report: Meta taps Scale AI's Alexandr Wang to join new ‘superintelligence' lab
In Brief Meta plans to unveil a new AI research lab dedicated to 'superintelligence' as the company works to compete in the AI race, according to several reports. Meta has tapped Scale AI founder and CEO Alexandr Wang to join the new lab, The New York Times reports. Meta has been in talks to invest billions into Scale AI as part of a deal that would bring Scale AI employees to Meta. Meta has also been poaching lead researchers from OpenAI and Google, per the Times. The new lab comes as Meta CEO Mark Zuckerberg grows frustrated with his company's AI shortfalls. Bloomberg reports he has been meeting with AI researchers and engineers at his homes in Lake Tahoe and Palo Alto to personally recruit a team of around 50 people, including a new head of AI research. Sources told Bloomberg that Zuckerberg believes Meta can and should outpace other tech companies gunning to achieve AGI, the still-undefined idea that AI systems could exceed human performance in many tasks. Meta AI last month reached 1 billion monthly active users.