Fannie, Freddie stocks on the rise as GOP takeover boosts privatization hopes

MW Fannie, Freddie stocks on the rise as GOP takeover boosts privatization hopes

By Chris Matthews

Traders are betting on the end of conservatorship is a high-risk, high-reward Trump trade

Investors in mortgage-finance giants Fannie Mae and Freddie Mac have watched those stocks more than double in 2024 amid hopes that President-elect Donald Trump would end the federal government's conservatorship of the companies when he assumes office.

Fannie (FNMA) and Freddie (FMCC) shares were on the rise again Tuesday after a series of reports that reflect the Republican party's desire to return Fannie and Freddie to the private sector.

Fannie shares were up 3.9% Tuesday, while Freddie Mac stock was up 4%, according to FactSet. The companies are not listed and only trade over-the-counter.

Investors were focused on a new letter from the Congressional Budget Office to Republican House Financial Services Chairman Patrick McHenry, which stated that compared with 2020, selling the companies to the private sector would be easier today.

"Options for recapitalizing Fannie Mae and Freddie Mac show the [companies] having a higher value to investors than they did in the previous analysis," CBO Director Phillip Swagel wrote, adding there would likely be sufficient demand from private investors to recapitalize them and pay back the roughly $190 billion owed to the Treasury.

Rep. French Hill of Arkansas, a Republican set to lead the Financial Services Committee next year, has also spread the word that he's open to releasing Fannie and Freddie from conservatorship.

He said he "sees a role for Congress" in that process, "but that the process should start with the executive branch," according to a Monday note by Capital Alpha financial policy analyst, Ian Katz.

Another reason for optimism has been chatter on the Hill that releasing Fannie and Freddie from conservatorship could raise money for the Treasury and defray the cost of Trump's planned tax cuts.

"It's an open question whether the Congressional Budget Office would score a release positively - or positively enough to make it worthwhile." Katz wrote.

"There will also be large questions about what would happen to the implied government backstop of Fannie and Freddie," he added. "And there's also the issue of whether President-elect Trump would support the potential risks to the housing market."

Some experts like Christopher Whalen, chairman of Whalen Global Advisors, believe that releasing the companies will raise costs for prospective home buyers.

"The cost of conventional mortgages is going to go up," he told Housing Wire last week. "Also, the people selling loans to Fannie and Freddie today may become their competitors. Competitively, it's going to be a very interesting situation."

-Chris Matthews

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December 17, 2024 15:01 ET (20:01 GMT)

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