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In a recent post on Truth Social, President Donald Trump announced that he is giving “very serious consideration” to taking Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) that underpin much of the U.S. housing market, public. This potential move, which would end over 15 years of federal conservatorship, has sparked intense debate among policymakers, investors, and economists. With Fannie Mae and Freddie Mac supporting roughly 70% of U.S. mortgages, privatizing these mortgage giants could have far-reaching consequences for the housing market, taxpayers, and the broader economy. This article explores the context of Trump’s plan, its potential benefits, inherent risks, and the challenges of implementation.
Background: Fannie Mae, Freddie Mac, and the Conservatorship
Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) were created by Congress to enhance liquidity in the housing market. As for-profit corporations with private shareholders, they purchase mortgages from lenders, package them into mortgage-backed securities, and sell these securities to investors. This process ensures a steady flow of capital for home loans, supporting the affordability of the 30-year fixed-rate mortgage, a cornerstone of American homeownership.
In 2008, the housing market collapse exposed vulnerabilities in Fannie and Freddie’s operations. The GSEs suffered massive losses due to defaults on subprime mortgages, prompting the federal government to place them under conservatorship by the newly created Federal Housing Finance Agency (FHFA). The U.S. Treasury injected $189 billion to stabilize the firms, taking an 80% stake in their preferred stock and sweeping their profits as dividends. Since then, both companies have repaid their bailouts and returned to profitability, generating significant cash flows. However, they remain under government control, a status many argue was never meant to be permanent.
Trump’s interest in privatization is not new. During his first term, his administration explored releasing Fannie and Freddie from conservatorship, but efforts stalled due to complexities and external factors like the COVID-19 pandemic. Now, with a second term underway, Trump appears determined to revisit this goal, citing the GSEs’ strong financial performance and the potential for a massive public offering.
The Plan: Privatization and Its Potential Benefits
Trump’s plan involves taking Fannie Mae and Freddie Mac public, likely through an initial public offering (IPO) that could rank among the largest in history. He has signaled intentions to consult key figures, including Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and FHFA Director William Pulte, to finalize a decision soon. The rationale, as Trump stated, is that “Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH, and the time would seem to be right.”
Financial Windfall for the Government
Privatizing the GSEs could generate significant revenue for the federal government. Analysts estimate that selling the government’s stake could yield between $250 billion and $382 billion, providing a one-time boon to offset fiscal pressures, such as the projected $4 trillion deficit increase from recent tax cut legislation. Some have suggested these proceeds could fund a U.S. sovereign wealth fund or be reinvested in housing initiatives, such as middle-income housing development, as proposed by Gary LaBarbera of the Housing for US coalition.
Benefits for Shareholders
Investors, including hedge fund billionaire Bill Ackman, have long bet on privatization, holding shares in Fannie and Freddie in anticipation of a windfall. Since the GSEs’ stocks trade on over-the-counter markets, a public offering could significantly boost their value, rewarding shareholders who have weathered years of uncertainty. Ackman, for instance, responded to Trump’s announcement with optimism, suggesting a credible path to privatization by 2026.
Reducing Government Exposure
Privatization aligns with longstanding Republican goals to reduce government involvement in the housing market. Proponents argue that ending conservatorship would limit taxpayer exposure to future bailouts, as seen in 2008, and foster competition by allowing the GSEs to operate as fully private entities. This move could also appeal to those who view the current arrangement as an overreach of federal control.
Risks and Challenges
While the potential benefits are significant, privatizing Fannie and Freddie carries substantial risks, particularly for the housing market and American homebuyers.
Impact on Mortgage Rates
One of the most cited concerns is the potential for higher mortgage rates. Currently, Fannie and Freddie benefit from an implicit government guarantee, allowing them to borrow at low, near-risk-free rates. As private entities without this backstop, their borrowing costs could rise, reducing profitability and prompting investors to demand higher yields on mortgage-backed securities. This could translate to increased mortgage rates for consumers. Mark Zandi, chief economist at Moody’s Analytics, estimated in 2024 that privatization could add $1,800 to $2,800 annually to the cost of a typical new mortgage.
Treasury Secretary Scott Bessent has emphasized that any privatization plan must prioritize avoiding mortgage rate hikes, stating in February 2025 that “the most important metric” is ensuring rates do not rise. FHFA Director William Pulte has similarly cautioned that privatization requires “significant study” to assess its impact on rates, suggesting a timeline that could extend to 2026 or 2027.
Economic Stability
Fannie and Freddie’s role as the backbone of the U.S. housing market—backing roughly half of the $16 trillion mortgage market—means any structural change could have systemic implications. A poorly executed privatization could spook investors, disrupt the flow of capital to lenders, and destabilize the housing market. Critics warn that without a clear government guarantee, the GSEs might lose their triple-A credit rating, further increasing costs and risks.
Political and Legal Hurdles
Privatizing Fannie and Freddie is not a simple executive action. Changing their legal status likely requires congressional approval, which could face resistance from Democrats and even some Republicans concerned about housing affordability. Previous attempts, including during Trump’s first term, failed due to these complexities. Additionally, the Treasury’s $212 billion liquidation preference in Fannie Mae alone complicates the financial mechanics of privatization, as the government must balance recouping its investment with ensuring the GSEs’ viability as private entities.
Social Media Speculation and Project 2025
Trump’s announcement has fueled speculation on social media, with some users linking the plan to Project 2025, a conservative policy blueprint by The Heritage Foundation. The project advocates ending Fannie and Freddie’s conservatorship to reduce government control and taxpayer risk, aligning with Trump’s stated goals. However, Trump has repeatedly distanced himself from Project 2025, and critics on X have warned that privatization could “severely restrict liquidity, affordability, and stability” in the housing market. These claims remain speculative and lack conclusive evidence, but they highlight the polarized sentiment surrounding the proposal.
Implementation and Timeline
The path to privatization is fraught with logistical challenges. One proposed approach is a massive IPO, potentially listing Fannie and Freddie on public exchanges. Another idea, suggested by Stifel CEO Ronald Kruszewski, involves integrating the GSEs into a sovereign wealth fund while maintaining some government support, similar to how banks pay for federal deposit insurance. This could generate $30 billion annually for reinvestment, though it would require careful structuring to avoid market disruptions.
FHFA Director Pulte’s recent actions, including appointing himself chair of both GSEs and firing 14 board members, signal a shakeup that many interpret as a precursor to privatization. However, experts like Mark Calabria, former FHFA director, estimate that a full transition is unlikely before 2027, given the need for public comment, regulatory adjustments, and capitalization efforts. Calabria has pegged the odds of privatization within four years at 70%, but he ruled out 2025 as a feasible timeline.
Broader Implications
Trump’s plan comes at a time of heightened economic scrutiny, with fears over the federal deficit and rising mortgage rates already straining homebuyers. Privatizing Fannie and Freddie could exacerbate affordability challenges, particularly if rates rise, potentially putting homeownership further out of reach for many Americans. Conversely, the financial windfall could fund infrastructure, housing, or deficit reduction, aligning with Trump’s broader fiscal agenda.
The plan also reflects a broader ideological shift toward reducing government’s role in key sectors. While this resonates with free-market advocates, it raises questions about balancing profitability with the GSEs’ public mission to promote affordable housing. The Housing for US coalition’s call to reinvest proceeds in middle-class housing suggests a potential compromise, but its feasibility remains unclear.
A Final Word
President Trump’s consideration of taking Fannie Mae and Freddie Mac public represents a bold but risky step toward reshaping the U.S. housing market. The potential for a $300 billion-plus windfall and reduced government exposure is tempered by concerns over higher mortgage rates, economic stability, and implementation challenges. As Trump consults with his economic team, the outcome will hinge on careful planning to avoid disrupting the housing market that millions of Americans rely on. With a decision expected “in the near future,” stakeholders—from homeowners to investors—will be watching closely. As Trump himself teased, “Stay tuned!”
