Administration Reportedly Exploring IPO of Fannie Mae, Freddie Mac

Action: The Administration is reportedly considering plans for a public offering of a portion of the shares of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which have operated under Federal conservatorship since the 2008 financial crisis. Press reports suggest the companies could be valued at a combined $500 billion, and previous analyses circulated within the Trump administration had estimated the government’s total stake in the GSEs could be worth $250 billion. However, many key questions remain unanswered, including the percentage of shares to be listed, what role the government would maintain after the IPO, whether the shares to be offered would have voting rights, and whether the companies would be combined as part of the process.

Trusted Insights for What's Ahead^®

• The Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) were established by Congress, in 1938 and 1970 respectively, to provide liquidity to the mortgage market and expand mortgage lending. Despite their Congressional charters, the GSEs are private companies with private shareholders and boards of directors, though the degree of government involvement in their ownership and governance structures has varied over time.
• In September 2008—facing collapse due to their concentrated exposure to the housing market and high leverage—the GSEs entered into conservatorship agreements with the Federal Housing Finance Agency (FHFA). Under the terms of the agreements, the government received senior preferred shares and warrants to buy up to 79.9% of common stock in each company in return for financial support from the Treasury. From 2012 to 2019, Treasury also retained the firms’ profits. Between 2008 and 2011, the firms received about $190 billion in capital from the Treasury, which by 2019 the firms had repaid in dividends totaling over $300 billion.
• Though conservatorship was meant to be temporary, policymakers across four Administrations have been unable to coalesce around a plan for the government to exit its positions in the companies. In 2019 President Trump directed the Treasury department to develop an unrealized plan to, among other things, end the GSEs’ conservatorship.
• It is unclear whether the current attempts will be successful. Analysts note that without a government guarantee of the GSEs, mortgage prices would rise, creating significant political pressure to maintain the government’s role. The President has stated that even after an IPO, the government should maintain its guarantee. Investors in any IPO would presumably also prefer the government retains the guarantee. However, critics argue that listing the firms while maintaining the government guarantee recreates the moral hazard which contributed to their failure during the financial crisis.
• Fannie Mae and Freddie Mac initially listed on the New York Stock Exchange in 1970 and 1989 respectively though both were delisted in 2010 at the direction of the FHFA as both firms’ share prices hovered around $1. Shares in the firms currently trade over-the-counter and rose on the news of a possible IPO.