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Senate Democrats have questions and concerns about the Trump administration’s plans to restructure mortgage giants Fannie Mae and Freddie Mac — and are asking their federal regulator to put any action to privatize them or take them public on hold.
In a letter to Federal Housing Finance Agency (FHFA) Director Bill Pulte Thursday, lawmakers asked for assurances that changes in the works at Fannie and Freddie won’t “put investor profits over the homes of millions of Americans” and drive mortgage rates up.
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“As FHFA Director, you have a duty to ensure the safety and soundness of [Fannie and Freddie], and a decision of this magnitude cannot be made on a whim without Congressional consultation and approval,” lawmakers said.
The five-page letter — signed by 14 Senate Democrats, including ranking Banking Committee member Elizabeth Warren and Senate Minority Leader Chuck Schumer — sought more information about the status of plans to reorganize Fannie and Freddie by June 18, 2025.
An FHFA spokesperson said in a statement to Inman that the agency is “studying how, if the President elects to take Fannie and Freddie public, it can be done in the safest and soundest manner, which includes keeping them in conservatorship. In any scenario, we will ensure the MBS [mortgage-backed securities] market is safe and sound and that there is no upward pressure on rates.”
Fannie and Freddie were placed in government conservatorship in 2008 under financial strains generated by the 2007-2009 housing crash and the Great Recession. The companies don’t make loans themselves, but play a vital role in keeping mortgage rates down by guaranteeing that MBS investors who fund most U.S. home loans get paid even when homeowners have trouble making their loan payments.
While Trump took steps during his first administration to release the mortgage giants from the government’s control, disagreements over how the companies would be structured have kept the “government-sponsored entities,” or GSEs, in limbo.
Advocates of privatizing Fannie and Freddie have always expected that it would entail the government divesting itself of its ownership in the companies and releasing them from conservatorship. The Trump administration has hinted at a different path that could involve taking the companies public while maintaining the FHFA’s tight control over their business.
Restructuring Fannie and Freddie without privatizing them might keep mortgage rates from climbing, but could also leave taxpayers on the hook if the companies run into trouble again.
In a May 28 appearance on CNBC, Pulte noted that in one recent social media post, Trump “very explicitly says that he wants to take them public. He did not say that he wants to privatize them.”
Treasury Secretary Scott Bessent has acknowledged that the government might even put its considerable stake in the companies in a sovereign wealth fund. In theory, Fannie and Freddie could generate revenue for the government.
“The reason they’re talking about this is they need the cash in order to make their tax cuts and their budget reconciliation bill work,” Whalen Global Advisors LLC Chairman Christopher Whalen told Yahoo Finance on May 22.
Shares in Fannie and Freddie gained more than 40 percent after Trump first posted to social media on May 21 that the companies “are doing very well, throwing off a lot of CASH, and the time would seem to be right” to take them public.
But Fannie and Freddie shares have since given up some of those gains, as it dawned on investors that the Trump administration might be more intent on tapping the companies as a source of revenue than privatizing them.
After Trump posted to Truth Social on May 27 that the government intended to maintain an implicit guarantee of Fannie and Freddie’s obligations, some Fannie and Freddie investors got cold feet and sold their shares.
A June 3 Bloomberg News story that confirmed the mortgage giants might remain in conservatorship — and perhaps be used to generate revenue to pare down the deficit — accelerated the selloff in Fannie and Freddie.
Ackman’s case for forgiveness
If the Trump administration wants to use Fannie and Freddie to generate revenue instead of privatizing them, that might come at the expense of existing investors, whose shares have traded on an over-the-counter exchange since being delisted by the New York Stock Exchange in 2010.
That includes billionaire Bill Ackman’s hedge fund management company, Pershing Square Capital Management, which holds significant stakes in both companies.
The worst-case scenario for existing investors is that the government converts its senior preferred shares in the companies into common stock, massively diluting the value of existing stockholders’ shares.
In a lengthy June 3 post on X, Ackman called the “notion that the Trump administration would act in a manner to wipe out [existing Fannie and Freddie] investors for an uncertain and likely suboptimal outcome … extremely unlikely.”
Ackman argues that the government would come out ahead if it simply cancelled the $348.2 billion Fannie and Freddie would currently be required to pay to buy back their preferred shares under terms established in 2008.
Cancelling Fannie and Freddie’s balance sheet liabilities would not be a gift to existing shareholders, Ackman maintains, because the mortgage giants never got credit for $301 billion in payments they made to the government when the Treasury was sweeping all of their profits into government coffers.
If the government instead tried to convert its preferred shares into common stock, Fannie and Freddie would have difficulty raising money from the private sector, Ackman argued — and face a flood of lawsuits from existing investors that would delay their exit from conservatorship.
Ackman complained that the media “often depicts Pershing Square as having wealthy investors,” but noted that the company manages funds on behalf of thousands of small shareholders as well as pension funds and others that invest on behalf of retirees and other small investors.
“While the press and some politicians attempt to portray the [potential release of Fannie and Freddie] from conservatorship as a windfall for the rich, the vast majority of the value created here will go to small investors,” Ackman claimed.
Depending on what the Trump administration has in mind for the mortgage giants, it may not be required to obtain Congressional approval.
Moody’s Chief Economist Mark Zandi said Monday that the most likely outcome is that the Trump administration keeps Fannie and Freddie in conservatorship so mortgage rates don’t go up.
Zandi said he’d like to see Fannie and Freddie chartered as government corporations with an explicit guarantee, which would help keep mortgage rates low.
Real estate industry groups like the National Association of Realtors and the Mortgage Bankers Association have proposed a “utility-style” model for Fannie and Freddie that would provide an explicit guarantee while limiting their risks and profits.
But because Congress would have to pass legislation approving such a model, there’s virutally no chance of that happening, Zandi said.
Trump has a tight grip on Fannie and Freddie
The Trump administration gained tight control over Fannie and Freddie after Pulte, grandson of PulteGroup founder William J. Pulte, fired 14 board members and made himself the chair of both companies in March.
Pulte has issued dozens of orders out of the public eye, eliminating programs and policies intended to boost lending in minority communities, protect borrowers from unfair or deceptive practices, and assess risks associated with climate change.
New appointees to the mortgage giants’ boards include banker and investor Omeed Malik — dubbed “MAGA world’s premier financier” and a “close friend” of Donald Trump Jr. by New York Magazine — as well as former Pulte Group division president Mike Stucky and Brandon Hamara Hamara, vice president of land acquisition at homebuilder Tri Pointe Homes Inc.
Senate Democrats have questioned the legality of Pulte’s Fannie and Freddie board purges and his right to serve as chair of the companies.
In their June 5 letter to Pulte, lawmakers wanted to know what the timeline was for privatizing or restructuring Fannie and Freddie, and whether the FHFA has met with Ackman or any other GSE shareholders.
“To our knowledge, neither FHFA nor the Administration have produced a study on the impact that releasing [Fannie and Freddie from conservatorship] would have on safety and soundness, mortgage rates, or the housing market and financial system more broadly,” Senate Democrats said.
The Trump administration “has also not released any information indicating whether the [GSEs] financial positions would make it feasible to take them public, including by relisting their common and preferred stock, or what taking them public would entail,” lawmakers complained.
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