President Donald Trump recently announced on social media that he is seriously considering taking Fannie Mae and Freddie Mac public once again. He pointed to the companies’ strong financial performance and stated that he would consult with key economic advisors, including the Treasury Secretary and the Federal Housing Finance Agency Director, before making a final decision. Trump suggested that the timing may now be right, which has reignited the long-running debate over the future of these two government-sponsored enterprises (GSEs) that have played a central role in the U.S. mortgage market for decades.
If the administration follows through with privatization, the move would require Fannie Mae and Freddie Mac to meet current capital requirements established by the Federal Housing Finance Agency (FHFA). Based on recent financial filings, doing so could involve a massive equity offering of up to $382 billion—by far the largest in history. This would dwarf Saudi Aramco’s $25.6 billion offering in 2019, currently the world’s largest. The scale of such a transaction highlights both the financial ambition behind the plan and the substantial challenge of attracting enough investor interest in a market already dealing with concerns over deficits and rising interest rates.
However, taking Fannie and Freddie public again raises several significant questions for the broader financial system. One of the main concerns is how their debt and mortgage-backed securities (MBS) would be rated and treated under existing regulations. While Moody’s has noted that the GSEs would likely continue to receive implicit support from the U.S. government, any reduction in that perception could lead to credit rating downgrades. The status of these securities under bank capital and liquidity rules, as well as their eligibility for purchase by the Federal Reserve, would also come under scrutiny. Maintaining favorable treatment is critical for preserving demand among banks and institutional investors.
In addition to regulatory and credit concerns, privatization could have wide-ranging impacts on key parts of the mortgage finance infrastructure, including the TBA (To-Be-Announced) and UMBS (Uniform Mortgage-Backed Securities) markets. A return to competitive behavior between Fannie Mae and Freddie Mac, such as differing underwriting standards or guarantee fees, could disrupt the uniformity that has made these markets efficient and liquid. This fragmentation could result in inconsistent prepayment behaviors, potentially weakening investor confidence and complicating pricing in these important markets.
Finally, there could be broader implications for MBS spreads and overall interest rate volatility. If the privatized entities resume large-scale portfolio investing, their most profitable pre-crisis activity, they may also restart aggressive interest rate hedging strategies. These include delta-hedging MBS negative convexity and buying interest rate options, actions that historically transferred volatility from mortgage markets into broader fixed income markets. While privatization could offer a path to long-term reform, it carries meaningful risks and complexities that would need to be carefully managed to avoid destabilizing the mortgage market and the wider financial system.