MW This 'Trump trade' could wreck U.S. housing finance, warns Pimco

By Joy Wiltermuth

'Don't fix what's not broken,' says Pimco about Freddie Mac and Fannie Mae's role in housing finance

Of the popular "Trump trades" this year, one hinging on privatization of housing giants Freddie Mac and Fannie Mae could be particularly problematic for U.S. housing finance.

That's the view of a team at Pimco, one of the world's largest asset managers, and a significant owner of Freddie (FMCC) and Fannie (FNMA) mortgages bonds with government backing.

"One of the starkest examples of these 'Trump trades' is the outperformance of about $20 billion in outstanding equity and preferred stock in Fannie Mae and Freddie Mac, driven by speculation that these government-sponsored enterprises, or GSEs, might be released from over 16 years of government conservatorship - a move that could potentially benefit shareholders," wrote Libby Cantrill, head of public policy at Pimco, as well portfolio managers Daniel Hyman and Mike Cudzil, in a Wednesday client note.

Following the Republican sweep in November's election, speculators have become more optimistic about the odds of their conservatorship coming to an end, sending shares up about 270% for Freddie and 350% for Fannie on a yearly basis.

The Federal Housing Finance Agency's new director Bill Pulte, who recently appointed himself chairman of both Fannie and Freddie, claimed the two agencies "were bloated" and that he's seeing fraud in single-family and multifamily lending, during a CNBC interview.

But when asked if the agencies were going to be privatized, he said, "We'll see."

Pimco's team thinks any hasty attempts to yank Freddie and Fannie out of conservatorship, without certain reforms, could harm taxpayers and jeopardize the U.S. mortgage market's crown jewel: the 30-year fixed rate mortgage.

"If the GSEs are released but the government remains accountable to come to their rescue, wouldn't taxpayers ultimately be the biggest loser (once again) by seeing GSE gains privatized but losses socialized?" they asked.

What's more, privatization without an "explicit, legislated government guarantee" would spur uncertainty in the market and result in higher mortgage rates, they said.

Another takeaway: "Don't fix what's not broken."

Related: Why the 30-year fixed-rate mortgage isn't going away under Trump

-Joy Wiltermuth

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May 15, 2025 18:07 ET (22:07 GMT)

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