Investors are ramping up bets that Trump 2.0 will loosen the federal government’s grip over mortgage giants Freddie Mac (FMCC) and Fannie Mae (FNMA), ending one of the oldest fights on Wall Street.
The stocks of Freddie Mac and Fannie Mae — semi-acronyms for Federal Home Loan Mortgage and the Federal National Mortgage Association — have jumped 147% and 120% since Donald Trump’s election win, according to Yahoo Finance data.
They both play a central role in the US housing market by purchasing mortgages from lenders and re-packaging them as securities, and both fell under government control during the 2008 financial crisis as mortgage defaults soared.
Some of Wall Street’s most prominent investors, including John Paulson and Bill Ackman, began wagering that the companies would eventually be returned to private control by purchasing common and preferred stock in Fannie and Freddie.
They hoped it would happen during the first Trump administration, only to see that effort fizzle. Now some believe a second Trump administration can get it done, even if it still takes some more time.
“It is 100%, in my mind, mechanically doable by 2027,” said Mark Calabria, the former director of the Federal Housing Finance Agency (FHFA), which oversees the two mortgage giants.
He put the odds of such a development at 70%, saying “there’s zero chance” it will happen in 2025.
The Wall Street Journal reported in September that former Trump administration figures and bankers had been discussing a privatization of the mortgage giants, but Trump himself was mum on the topic while campaigning.
The argument for doing it is that selling the government’s stakes in the companies could generate billions that could be used to reduce the deficit and return money to taxpayers. The argument against it is that it could affect access to credit in the housing market, which relies on Fannie and Freddie to fund 30-year mortgages.
Much will also depend on whom Trump picks to run the FHFA and the Treasury Department.
Paulson, a billionaire hedge fund manager who made a fortune betting against subprime mortgages during the 2008 crisis, had been rumored as a candidate for the Treasury post but said last week that “my complex financial obligations would prevent me from holding an official position in President Trump’s administration.”
It has been a long, uneven ride for hedge funds that began wagering on a privatization of Fannie and Freddie after the Treasury Department injected a total $189 billion into the institutions.
The federal government altered the terms of its takeover agreement in 2012, as Fannie and Freddie returned to profitability, by sweeping all net profits of those institutions into the Treasury Department as dividends.
