Fannie, Freddie Shares Jump as Trump Pushes for Stock Offering This Year

Fannie Mae offices in Reston, Va. The company has been in conservatorship since the 2008 financial crisis. (Kent Nishimura/Bloomberg)

President Donald Trump is considering holding a public offering for mortgage giants Fannie Mae and Freddie Mac as soon as this year. The details will be critical for shareholders, mortgage borrowers, and holders of the companies’ mortgage bonds.

Trump over the past few weeks met with the chief executives of banks including Citigroup, Bank of America, Goldman Sachs, and JPMorgan Chase to discuss a potential stock offering of Fannie and Freddie, according to a senior administration official. The offering could be held as soon as this year, and “the president is weighing all his options,” the official said.

Shares of Fannie Mae rose about 18% to $9.79 as of midday Friday, and Freddie Mac rose 21% to $7.99, after The Wall Street Journal earlier reported Trump was considering the move.

Fannie and Freddie don’t make mortgages themselves. They buy them from lenders, wrap them into mortgage-backed securities, and make guarantees to make bond investors whole if borrowers default. The companies failed during the 2008 financial crisis, and the government put them into a so-called conservatorship managed by the Federal Housing Finance Agency. Since then, the White House and lawmakers have tried and failed multiple times to find a way to bring the companies out of government control.

The FHFA and Treasury Department didn’t respond to requests for comment.

Releasing Fannie and Freddie from government control has been a long-stated goal for Trump. The president tried during his first term, but ultimately ran out of time as the White House turned its focus to the Covid-19 pandemic.

Trump reignited interest in a potential Fannie and Freddie offering in May, posting on social media that he was working on taking the companies public. Since then, however, agency officials have revealed scant detail about what such an offering could mean.

A primary point of confusion has been assertions from both Trump and FHFA Director Bill Pulte that the president would sell shares in the companies but still keep them in conservatorship or under government control.

An offering this year would be a much more aggressive timeline than most analysts have expected.

The potential offering would seek to raise around $30 billion, involve the government selling shares, and value the companies at about $500 billion combined, the The Wall Street Journal reported and the senior administration official confirmed.

It’s as yet unclear how the administration would treat the current holders of Fannie and Freddie’s legacy stocks. Under the terms of the bailout agreement, the government also owns warrants to acquire nearly 80% of the companies’ common stock and hundreds of billions of dollars of “senior” preferred shares. What the government does with those stakes will be critical to how much money current shareholders would make in a public offering. During the first Trump administration, officials considered converting the government’s senior preferred shares into common stock, a move that would have severely diluted existing private shareholders.

The White House will also need to weigh concerns from the companies’ bond investors, some of whom have warned that mortgage rates could rise depending on whether and how the companies exit conservatorship.

The companies’ bailout agreements include a government backstop in case the companies run out of capital, a shield that the companies currently don’t pay for and that would have to be dealt with if the companies left U.S. control.

Trump has posted on social media that the companies would retain the “implicit GUARANTEES” of the government. That post apparently referred to the pre-crisis situation of the companies, when investors assumed the government would bail them out in a crisis even though the government and companies explicitly disavowed that would happen.

Pulte told Barron’s in July that Fannie and Freddie would likely remain in conservatorship under Trump, and some investors have questioned whether a public offering could be successful if the president is unwilling to cede control of the companies.

Write to Joe Light at joe.light@barrons.com