Washington/New York — US President Donald Trump’s administration could kick off initial public offerings (IPOs) of Fannie Mae and Freddie Mac later this year, according to a senior administration official, marking a milestone for the mortgage finance giants that have been under government control for years.
The share sales could value Fannie and Freddie at nearly $500bn combined, the official said, speaking on the condition of anonymity.
The deal would be an important turning point for the companies, which have been under federal conservatorship since 2008. The administration has been talking to banks about the potential share sale but has not formally appointed one to lead the process, a source familiar with the matter said.
Fannie and Freddie were created by Congress to support the housing market by ensuring affordable mortgage financing but crumbled after being severely bruised during the financial crisis.
They were bailed out with taxpayer funds, and the treasury department received preferred shares in return, which paid billions of dollars in dividends over the years.
Efforts to return them to private control have continued, including under Trump's first term, but have failed to get traction.
Mortgage-backed securities
“The US mortgage market has proven healthy in recent years. While Fannie Mae and Freddie Mac are very different from the types of companies that have recently tapped into the IPO market, pent-up demand for new stocks could be tailwinds for their listings,” said Angelo Bochanis, data and index associate at Renaissance Capital, a provider of IPO-focused research and ETFs.
The administration’s latest plans were first reported by the Wall Street Journal. The plans are tentative and could change.
Fannie and Freddie buy mortgages from lenders, holding them in their portfolios or bundling them into mortgage-backed securities (MBS) for sale.
The cash lenders receive from these sales fuels more lending, helping ensure a steady supply of mortgage financing for homebuyers, apartment investors and other multifamily property purchasers.
By converting mortgages into MBS and guaranteeing payment of principal and interest, Fannie and Freddie lure investors into the secondary mortgage market, increasing the funds available for housing.
With Trump back in the White House, hopes have resurfaced that their long-pending privatisation could finally be completed.
Oversight role
Billionaire investor Bill Ackman, who has held stakes in Fannie and Freddie for more than a decade, said last year he was counting on Trump to finish the job.
However, any unwinding of the government's holdings could be complex, given the trillions in mortgages the companies guarantee. Trump also said in May that he would retain an oversight role over the companies even if they went public, potentially posing challenges for future shareholders.
“A partial sale this year would almost certainly leave a large overhang,” said Kat Liu, vice-president at IPO research firm IPOX.
“Investors would likely price in expectations of future government sell-downs, which can weigh on valuations unless officials set a clear, staged exit plan.”
The companies did not immediately respond to Reuters requests for comment. Fannie’s shares rose 18%, while Freddie climbed 20%, hitting their highest in more than a month. Both trade over the counter.
Trump met the CEOs of Citigroup and Bank of America last week to discuss the administration’s plans to privatise the mortgage giants, Reuters had reported earlier.
Reuters
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