On May 21, Trump stated that he is seriously considering taking Fannie Mae and Freddie Mac public.
The statement immediately caused noticeable positive movement in Fannie Mae and Freddie Mac’s share price for the first time in years.
Both mortgage titans are currently under government conservatorship as a result of the 2008 recession. However, during Trump’s first term, his Treasury Department allowed them to keep all of their earnings, though they still owe the Treasury Department hundreds of billions of dollars in a liquidation preference. Trump also unsuccessfully attempted to release the two companies from the conservatorship during his first term.
Even JPMorgan warned about the economically and politically disastrous consequences of privatizing Fannie Mae and Freddie Mac. It warned that “the feasibility and willingness to write off $340 billion owed to taxpayers may not be viable in the current political climate.” Though the Trump Administration and its allies have claimed that privatizing the two companies would reduce the deficit, doing so would inevitably see this $340 billion debt forgiven, a move promoted by billionaire Bill Ackman. Furthermore, it would allow the conditions that led to the 2008 financial crisis to re-emerge, especially if paired with financial deregulation, something Trump has also floated for his second term.
The Wall Street Journal also addressed the stakes of this potential policy:
Fannie and Freddie bundle and sell mortgages, with a government-backed guarantee to protect investors from losses when homeowners default. That allows banks and others to originate more 30-year, fixed-rate mortgages.
Skeptics have cautioned that privatizing Fannie and Freddie could, if not done carefully, drive away buyers of mortgage-backed securities and lead to higher mortgage rates.
The Wall Street Journal
