In This Article:
(Bloomberg) -- President Donald Trump said that the US government would retain guarantees and an oversight role over Fannie Mae and Freddie Mac even as he pursues a public offering for the mortgage giants.
Most Read from Bloomberg
“I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the US Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President,” Trump wrote Tuesday night in a post on his Truth Social platform.
The companies, which play a crucial role in the market for mortgage-backed securities, have been under government conservatorship since the 2008 financial crisis. Fannie and Freddie have both returned to steady profitability, with earnings being retained. Shares of both surged last week when Trump said he was considering a public offering.
Hedge funds and other investors have called for the government to release the two entities from conservatorship, which could provide a windfall for shareholders — including the government itself.
Shares of Fannie Mae climbed as much as 13% by 9:40 a.m. in intraday trading Wednesday, while Freddie Mac rose as much as 17%. Both stocks are at the highest levels since 2008.
Yet critics have argued that any such decision comes with some risks, especially over how much of a government guarantee Fannie and Freddie would still have. Given that both entities are overseen by the government, their bonds are seen as among the safest, bolstering the market for mortgage-backed securities.
Bill Pulte, head of the Federal Housing Finance Agency that oversees Freddie and Fannie, said in February that any effort to release the entities must be “carefully planned” to make sure the housing market remains safe without pressure on mortgage rates.
The president’s post appeared to reduce the risk that the government, as part of privatizing Fannie and Freddie, would leave the two GSEs without a financial backstop. Had it done so investors who participate in the $9 trillion MBS market for agency mortgage bonds might have demanded higher yields to own the securities, ultimately pushing mortgage rates higher. Mortgage rates could still increase in other privatization scenarios but potentially by smaller amounts.
“This at least takes off the table one of the scenarios that investors had really worried about,” said Tracy Chen, a portfolio manager at Brandywine.
--With assistance from Scott Carpenter, Norah Mulinda and Phil Kuntz.