Federal Housing Finance Agency director Bill Pulte has suggested that privatizing the GSEs was not an immediate priority at his confirmation hearing. However, a proposal floated by the members of the Trump administration indicates that there may be a timeline for privatization after all.
Namely, the administration is considering transferring the government's stakes in Fannie and Freddie to a proposed U.S. sovereign wealth fund, which has garnered industry leaders' attention, according to a report in The Wall Street Journal this weekend.
Treasury Secretary Scott Bessent noted this possibility on a podcast last week, though he did not provide specific details. Using these entities to bolster a sovereign wealth fund is intriguing to advocates, as it could generate significant revenue for the government. Estimates suggest that privatized Fannie and Freddie could be valued above $330 billion, with the government's stake exceeding $250 billion.
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Additionally, the entities might raise an additional $20 billion to $30 billion from new investors, akin to a massive initial public offering.
Wall Street has begun to weigh in on the potential privatization, the WSJ notes. Billionaire hedge fund manager Bill Ackman has endorsed the idea, provided it respects shareholders' interests. Ronald Kruszewski, CEO of Stifel Financial Corp., believes that transferring the government's stakes could enhance financial stability and pave the way for a substantial sovereign wealth fund.
Despite these discussions, there are concerns about the timing and potential disruptions in the mortgage market. Recent management and staffing changes at Fannie and Freddie have raised worries among bankers and regulators about even minor issues affecting mortgage pricing or data, which could impact investor confidence and keep mortgage rates elevated.
Moody's chief economist Mark Zandi said that while there are no immediate threats from these changes, any economic downturn could put significant pressure on Fannie and Freddie's relatively inexperienced board and management team.
The White House maintains that industry leaders have responded positively to Trump's economic agenda, committing trillions in investments. However, the path forward for Fannie and Freddie remains uncertain, with privatization efforts hanging in the balance.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
