Article Summary
President Donald Trump is considering bringing government-backed mortgage giants Fannie Mae and Freddie Mac back into the public markets after more than a decade of government oversight. The two entities have been under conservatorship since the 2008 financial crisis and have returned to profitability. This move could provide a windfall for shareholders, including the government, and generate billions in revenue. However, it also comes with risks, particularly around the level of government guarantee Fannie and Freddie would still have, which could impact mortgage rates.
What This Means for You
- If the government decides to release Fannie and Freddie from conservatorship, it could provide a financial boost to shareholders, including the government.
- Investors should be aware of the potential risks associated with any reduction in the government’s backing of Fannie and Freddie, as it could lead to increased mortgage rates.
- The mortgage industry will be watching closely to see how any changes to Fannie and Freddie’s status could impact mortgage-backed securities and the housing market as a whole.
- President Trump’s decision could also have implications for the federal deficit and could provide a revenue source to assuage concerns among fiscal hawks.
Original Post
President Donald Trump said Wednesday evening that he was giving "very serious consideration to bringing Fannie Mae and Freddie Mac public" after more than a decade of being under government oversight.
He added that he would consult with Treasury Secretary Scott Bessent along with Commerce Secretary Howard Lutnick and Bill Pulte, the director of the Federal Housing Finance Agency, which oversees Freddie and Fannie, as he comes to a decision.
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.
Ben Elliott, Bloomberg Intelligence industry analyst, said Trump could take "definitive, irreversible steps" to end the conservatorship "but his administration can’t achieve a successful public offering unilaterally or overnight."
Revenue source
Trump’s comments came shortly after he met with a group of House conservatives currently holding up his signature tax cut legislation over concerns about the impact on the deficit. A release could help provide billions to assuage concerns among fiscal hawks about the impact to the deficit.
Key Terms
- Fannie Mae
- Freddie Mac
- Government-backed mortgage giants
- Conservatorship
- Mortgage-backed securities
- Government guarantee
- Mortgage rates
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