Will the Trump administration’s plans to sell shares in Fannie Mae (OTCQB: FNMA) and Freddie Mac (OTCQB: FMCC) result in a spike in mortgage rates, or will it drive rates down? The answer, it seems, depends which expert you ask.
The Trump administration is reportedly considering an initial public offering (IPO) for Fannie Mae and Freddie Mac before the end of the year, with the goal of generating up to $30 billion by selling between 5% and 15% of the shares in the government-sponsored enterprises (GSE) to public investors.
Bloomberg reports that Libby Cantrill, head of public policy for the global investment management firm PIMCO, wrote in a note to clients earlier this week stating that post-IPO investor demand in the mortgage-backed securities sold by Fannie Mae and Freddie Mac could diminish unless the federal government is able to maintain its commitment to financially support those enterprises. Without that backing, Cantrill insisted, mortgages will become more expensive.
“Don’t fix what is not broken,” Cantrill wrote.
Realtor.com Senior Economist Jake Krimmel agreed with Cantrill’s prediction.
“The Trump administration’s potential move to IPO Fannie Mae and Freddie Mac later this year could mark a seismic shift in housing finance,” said Krimmel in an interview with TheStreet.com. “But the longstanding assumption of an implicit government guarantee remains key for the financial system and consumers,” Krimmel said. “Historically, that perception has kept mortgage rates low and helped ensure access to mortgage credit for borrowers across income levels. If an IPO weakens the market’s belief that the government stands behind the GSEs in a crisis, mortgage costs could rise and access to credit could tighten, especially in a downturn.”
However, earlier this week hedge fund executive Bill Ackman predicted the mortgages will become less expensive when Fannie Mae and Freddie Mac are out of their federal conservatorships.
“One way to reduce mortgage rates would be to merge Fannie and Freddie,” wrote Ackman on X. “A merger would enable them to achieve huge synergies both in their operations and in the trading price and spreads of their MBS, savings which could be passed along to consumers in the form of reduced mortgage rates. A merger would also reduce the cost and risks of government oversight as there would be only one institution that would require FHFA oversight.”
And Tim Pagliara, chief investment officer at CapWealth, an investment firm in Franklin, Tennessee, also predicted a positive outcome.
“An IPO of these entities could net the government over $250 billion, which are proceeds that can be used for a variety of initiatives, including the financing and construction of more homes in the US,” said Pagliara to Newsweek. “There is still a nationwide housing shortage and the proceeds from a Fannie Mae and Freddie Mac IPO could help to finance a solution to this shortage.”
Pagliara added the GSEs have been under federal conservatorship since 2008, noting that “nearly 17 years later, there is no more crisis, and there is no reason for the government to still be running these entities. It’s time for a public market handoff.”
