After the markets crashed in 2008, “real estate” became a nasty word. The very foundation that had made so many people wealthy – myself included – had failed us. At least, that’s how it felt…
In reality, it wasn’t all real estate’s fault. Yes, there was plenty of overbuilding (I participated in my fair share of that building). And yes, prices needed to correct… perhaps substantially.
But what should have been a real estate downturn – painful or not – was transformed into a crisis thanks to eye-watering leverage and opaque interconnectedness between some very big institutions. But that’s a story for another day.
The result was the same. It left individuals and the larger economy badly broken.
Bear Stearns was swallowed up by JPMorgan. Lehman Brothers collapsed outright and was eventually sold for scrap. Another two, Citigroup (C) and American International Group (AIG), almost went under.
And then there was the saga of Fannie Mae and Freddie Mac.
Created by Congress to act as private entities, both were supposed to provide liquidity, stability, and affordability to the mortgage market. They both provide liquidity through ready access to funds on reasonable terms to the thousands of financial institutions that deal in housing-specific loans.
Fannie Mae, born out of the Great Depression in 1938, had over $4.3 trillion in assets as of June 30. And in the first half of 2025, it funded over $178 billion for 668,000 households to buy, refinance, or rent a home.
Freddie Mac followed in 1970, initially serving to help ensure Fannie Mae’s mission, with a greater emphasis on reliable and affordable supply. Through the first half of 2025, it has provided more than $100 billion in liquidity to more than 1,000 lenders.
While neither actually issues loans, they buy up around half of all residential mortgages in the U.S. today. In short, they are and have been a very important part of the U.S. economy.
But 17 years ago, Fannie and Freddie were clearly in need of support themselves, having participated far too heavily in subprime mortgages. That’s why President George W. Bush signed the Housing and Economic Recovery Act of 2008 into law that July, which:
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Expanded the newly established Federal Housing Finance Agency’s (“FHFA”) regulatory authority over them, and
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Gave the U.S. Treasury authority to advance funds for the purpose of stabilizing both institutions.
In September 2008 – the month the market collapsed – the U.S. Treasury and FHFA announced they would take over Fannie Mae and Freddie Mac altogether by issuing bonds. Ever since, their management works under the FHFA’s direction and Treasury’s oversight to reduce losses and develop a new operating structure.
Originally, this was supposed to be a temporary solution – an emergency act that would end as soon as the emergency was over. But despite the recession ending in 2009 and home prices fully recovering in 2012… no such thing happened.
Until, perhaps, this year.
Unlocking Value
Let’s face the facts: The conservatorship of Fannie Mae and Freddie Mac was one of the most lucrative endeavors the Treasury has ever made. As a result, it owns senior preferred stock with warrants that entitle it to 80% of its common stock.
Analysts estimate the combined value of these businesses could be roughly $500 billion.
But now, President Trump is seeking to release Fannie and Freddie from their conservatorship. By doing so, the Treasury would essentially sell its shares to investors, directly giving taxpayers up to $300 billion in value.
In which case, certain hedge fund investors like Bill Ackman and John Paulson – who bought shares during the post-crisis downturn – are set to mint money.
(I met Bill Ackman a few weeks ago at his office, in case you missed it. Here’s a link to my YouTube channel where I discussed the meeting.)
President Trump actually began the process of untethering Fannie and Freddie in 2019 when he paused their dividend payments to the U.S. By helping them retain their earnings, he calculated, they could recapitalize better and more quickly. Once they had, they could resume paying Uncle Sam.
Sure enough, according to Morgan Stanley’s Andrew Szczurowski, CFA:
Over the past four-plus years since the Trump administration paused the cash sweep from the [government-sponsored enterprises], they have been able to retain roughly $150 billion of earnings, and they have been more recently been earning roughly $25 billion per year combined.
It is also important to note that while the government has paused the cash sweep, it still believes it will be entitled to the foregone interest over the last six years, which means the number it is owed continues to compound.
In other words, Fannie and Freddie will need to pay back around $300 billion… and an IPO is one way to help do that. Plus, their synergies would save taxpayers billions.
According to Clifford Rossi, PhD, academic director of the University of Maryland’s Smith Enterprise Risk Consortium, “Both companies combined have about 15,000 employees. Combined [general and administrative] costs at these companies amounted to $6.5 billion in 2024.”
If they combined forces into a single entity before their market debut, that amount would easily beat the current world’s largest IPO, Saudi Aramco’s $25.6 billion in 2019. Besides, according to Rossi, “There’s basically no practical difference between the firms.”
However, as Szczurowski also points out, “It’s easy to see why the path to privatization is still a marathon and not a sprint.” $300 billion is just too much money for the market to absorb in a short time; it would take years to sell so much.
A Pathway to Privatization
That’s not the only issue that needs to be solved before Fannie Mae and Freddie Mac can go public. They must also figure out how to maintain their U.S.-backed appeal.
Otherwise, the cost of financing a home could easily skyrocket.
That’s why Szczurowski believes “the ultimate path out of government conservatorship” – if it happens at all – “comes with a more explicit backing from the U.S. government.” There’s currently no way to take Fannie and Freddie back to the completely private status they used to have.
Then again, as previously mentioned, there are many unnecessary expenses and complications in how they’re being handled right now. Ackman points out that by taking the Treasury out of the picture, taxpayers would only have to pay FHFA costs to oversee the companies.
In short, Szczurowski is right to conclude that “the more time that passes, the easier the path to privatization becomes because more capital is retained. But this process can’t be rushed.”
As their IPO is currently set for November, things are moving pretty quickly now. And as you can see, the president certainly supports it.
Source: X
Since real estate is a core asset we cover, rest assured I’ll have more to say as we near that date. Could the IPO make for an interesting investment? I’ll do my best to answer that question in the months ahead.
All I can say for sure now is that the emergency has long since passed. It’s time to set the Great American Mortgage Company free.
Regards,
Brad Thomas
Editor, Wide Moat Daily
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