MW Here's how Trump could turn Fannie Mae and Freddie Mac into cash cows delivering billions to taxpayers

By Chris Matthews

The move could come at the expense of existing shareholders

President Donald Trump is ready to make major reforms to government-owned housing-finance giants Fannie Mae and Freddie Mac and to potentially break with Republican orthodoxy by maintaining the federal conservatorship the companies have operated under for nearly two decades.

The president said in two social-media posts over the past nine days that Fannie (FNMA) and Freddie (FMCC) are "amazing companies" that are "throwing off cash," and arguing that now would be the time for the U.S. to monetize them for taxpayers by taking the companies public.

At the same time, he argued this could be done while the U.S. maintained an "implicit guarantee" to bail out the companies if need be, saying he "will stay strong in [his] position overseeing them as president."

Bill Pulte, Trump's federal housing finance administrator, shed a bit more light on the president's thinking this week, telling CNBC that "we're studying potentially keeping [Fannie and Freddie] in conservatorship and taking [them] public," adding that there are "opportunities to monetize these assets."

Jim Parrott, owner of housing-finance consultancy Parrott Ryan Advisors and a former economic adviser to President Barack Obama, told MarketWatch that while vague, these comments represent a sea change in Republican thinking on Fannie and Freddie.

"These comments put on the table for the first time in recent memory the possibility that the government may retain control of [Fannie and Freddie], maybe permanently, and use their revenues to pay for other policy needs," Parrott said.

Fannie Mae earned $17 billion in net income in 2024, while Freddie Mac netted $11.9 billion in profits. If the government simply funneled these earnings to the Treasury - as it did from 2012 to 2019 - these revenues, projected forward, could yield $289 billion over 10 years, a significant chunk of change as the GOP seeks ways to finance its massive tax and spending bill.

The pronouncements have not shed much light on what privatization of the mortgage giants could look like, although they have sent shares in the companies surging. Fannie's common stock has gained more than 47% in May, while Freddie's has advanced by more than 41%.

The shares remain unlisted on major stock exchanges and have largely been sold over the counter since the government took over the companies in the wake of the 2008 financial crisis.

That hasn't stopped some investors from loading up on the shares in the hope that shareholders will benefit from a privatization scheme.

But the administration's recent comments call this approach into question. Any benefits to existing shareholders would come at the expense of the American taxpayer, according to Michael Bright, who served as chief operating officer of the Government Mortgage Association, known as Ginnie Mae, during the first Trump administration.

He said that in order to attract private buyers of the companies, the government would likely have to waive its so-called liquidation preference, or the amount of money the Treasury would have to be paid back before other shareholders receive anything in the event of a sale.

That liquidation preference is now worth $341 billion, according to a recent analysis by Laurie Goodman, a housing-finance expert at the Urban Institute.

Holders of Fannie and Freddie shares think this should be waived because the mortgage giants have more than paid back the initial $191 billion investment the Treasury made in the companies during years of unprofitability following the housing crash.

But the bailout wasn't structured as a loan, so "there is no mechanism" for waiving the $341 billion the companies owe to the government, Goodman wrote.

Bright, who is now CEO of the Structured Finance Association, an industry advocacy organization, sees no reason to take the companies private simply for the sake of doing so.

"There's no compelling reason to do this right now," he told MarketWatch. "It's not like the mortgage market is struggling. Fannie and Freddie are doing fine, and I don't know what problem they're solving for."

Bright was a staffer for former Sen. Bob Corker, a Tennessee Republican, and worked on a bipartisan bill that would have replaced Fannie and Freddie with a new system of privately held mortgage guarantee companies. The legislation, which passed the Senate Banking Committee but was never brought to the Senate floor, would have created a new federal agency to insure mortgage-backed securities against catastrophic losses, in order to preserve the 30-year fixed-rate mortgage that forms the basis of the U.S. housing-finance system.

But that effort never made it out of Congress due to reservations on the extreme wings of both parties, Bright said. Without action by Congress, the administration's options are limited.

Only legislation can create new competitors to Fannie and Freddie or provide an explicit government guarantee for mortgage-backed securities. That means any push by the Trump administration to privatize the companies would likely preserve the current duopoly and rely on an informal, "implicit" backstop rather than a defined support structure.

As a result, efforts to take the companies public without congressional help risk recreating the pre-2008 system in which private shareholders reaped profits in the good times and U.S. taxpayers footed the bill when things went belly-up, according to Parrott.

That's one reason it is looking more likely that the government will retain significant control of the two companies, despite longtime ideological opposition to that arrangement by Republicans. Another reason is simply that they are very profitable companies whose earnings could reduce the budget deficit at a time when such revenues are sorely needed.

And if the president is dead set on this path, it's likely something will happen, according to Ian Katz, a policy analyst at Capital Alpha Partners.

"Trump's speaking on this issue puts pressure on his underlings to come up with a plan - if there isn't one already - and push it forward," he wrote in a Wednesday note. "We don't think Republicans will get in the way of whatever the administration plans, and Democrats don't have the power to stop it."

-Chris Matthews

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May 30, 2025 11:57 ET (15:57 GMT)

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