Mortgage giants Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC) may be on the path out of government conservatorship, as a new report builds on earlier signals from President Donald Trump about plans to return the firms to public ownership.
What Happened: Fannie Mae and Freddie Mac have been under government conservatorship since the 2008 financial crisis, and their true value has remained a subject of debate among policymakers and investors like Bill Ackman in the years since.
A new Wall Street Journal report says the Trump administration is preparing to sell a portion of the stakes held in the two mortgage giants.
The report stated that the government could sell 5% to 15% of its stock in the companies and raise approximately $30 billion. The two companies are valued at around $500 billion in the latest report.
The two companies bundle and sell mortgages and, under government ownership, rely on government-backed guarantees for loans to protect investors from losses.
While many believe that Fannie Mae and Freddie Mac conducting a share offering would end the government conservatorship, Federal Housing Finance Agency head Bill Pulte has in the past suggested the two companies could remain under government control while public, without providing details of this plan.
Another unknown detail is whether the companies will be treated as a single entity in the share offering or as two separate companies.
Meetings have been conducted about the future of Fannie and Freddie, with the CEOs of six of the largest US banks present, along with Trump, Pulte, Commerce Secretary Howard Lutnick, and Treasury Secretary Scott Bessent.
The six US banks represented were Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.
There is no guarantee that a share offering will happen, as hopes to take the company public come with question marks on whether the mortgage companies would keep the government-backed guarantees. Trump previously said that he wants the companies to maintain the guarantee through a public offering.
Without the government guarantee, there is a risk that mortgage rates could rise.
The Treasury Department currently owns senior preferred shares in both companies and warrants to purchase around 80% of the common stock in each company.
Why It's Important: Trump expressed interest in taking the mortgage companies public earlier this year.
Supporters of the plan believe this could be one of the largest stock offerings in history.
Proceeds from the share offering could be used to reduce America's debt, returned to taxpayers, or used to buy Bitcoin (CRYPTO: BTC) for the Strategic Bitcoin Reserve, depending on who you ask.
Hedge funder Ackman said earlier this year that the government's stake in Fannie and Freddie was likely worth $300 billion. Ackman said the government was not willing to give up its ownership and control.
Ackman was short both Fannie and Freddie during the 2008 financial crisis before years later becoming a strong supporter of the companies. The investor has argued that the two companies are well-capitalized and far safer than they were before the financial crisis.
Price Action: Fannie Mae shares are up 18.1% to $9.80 on Friday versus a 52-week trading range of $1.07 to $11.91. Freddie Mac shares are up 21.1% to $7.99 on Friday versus a 52-week trading range of $1.04 to $8.90.
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