Fannie Mae and Freddie Mac, two major housing mortgage finance giants, have seen significant stock gains this year. Since the beginning of the year, Fannie Mae's stock has increased by 121%, while Freddie Mac's has risen by 99%. These gains have accelerated since the U.S. presidential election, with both stocks surging over 420% since November. Recently, their stocks have climbed an additional 4% as investors speculate about potential privatization under the current administration.
These companies play a crucial role in the housing mortgage market by purchasing mortgages and packaging them into bonds for investors, thus providing liquidity for lenders to issue new loans. During the 2008 financial crisis, the U.S. government took control of Fannie Mae and Freddie Mac as their financial conditions deteriorated. Since then, their profits have been directed to the U.S. Treasury, keeping their preferred stock prices significantly below historical highs.
Analysts from Bloomberg Intelligence suggest that any privatization process will be lengthy, possibly not occurring until 2026 or 2027. However, the market is already reacting to this possibility. Notably, billionaire investor Bill Ackman (Trades, Portfolio), who has held shares in these companies for a decade, has started to see returns. Ackman recently released a detailed report advocating for the end of government conservatorship, aligning with a streamlined government approach.
Critics worry that privatization could increase mortgage rates and revive risky behaviors that led to the 2008 crisis. Supporters argue that Fannie Mae and Freddie Mac are now financially robust and better capitalized than before the crisis.
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