NextFin News - Shares of Fannie Mae and Freddie Mac experienced a violent bout of volatility on Friday after U.S. President Trump suggested the government-sponsored enterprises (GSEs) could be worth as much as $1 trillion. The remarks, delivered during a morning press briefing, sent the over-the-counter stocks soaring by more than 25% within minutes before a wave of skepticism from institutional analysts triggered a sharp retreat, leaving the shares nearly flat by the midday pause.
The sudden price action underscores the extreme sensitivity of the mortgage giants to executive branch rhetoric as the administration moves closer to a long-promised exit from federal conservatorship. U.S. President Trump’s valuation figure, which dwarfs current market estimates, appears to be based on a scenario where the companies are fully privatized and allowed to retain all earnings while maintaining their dominant position in the $14 trillion U.S. mortgage market. However, the path to such a valuation remains blocked by significant legal, regulatory, and legislative hurdles that have persisted since the 2008 financial crisis.
Bill Pulte, a prominent Trump administration official who has been instrumental in shaping the current housing plan, has recently advocated for raising the caps on mortgage bond holdings at the GSEs. According to an email obtained by the Associated Press, Pulte’s strategy involves expanding the companies' balance sheets from $40 billion to as much as $225 billion. Pulte, known for his aggressive stance on privatizing the mortgage giants, has long argued that the GSEs are undervalued assets that have been "trapped" by government overreach. His perspective, while influential within the White House, is often viewed by more conservative Treasury officials as overly optimistic regarding the speed at which private capital can replace the government’s backstop.
The $1 trillion figure is currently a minority view and does not represent a Wall Street consensus. Most sell-side analysts at major investment banks maintain much more modest valuations, often ranging between $50 billion and $150 billion, depending on the level of capital the Federal Housing Finance Agency (FHFA) requires them to hold. The discrepancy lies in the "net worth sweep" and the treatment of senior preferred stock held by the Treasury. Without a comprehensive settlement with existing shareholders, any move toward an initial public offering (IPO) remains fraught with litigation risk.
Skeptics point to the immense capital requirements as a primary headwind. For Fannie and Freddie to operate safely as private entities, they must build hundreds of billions of dollars in capital reserves. This process could take years of retained earnings or require a massive dilutive share issuance that would likely suppress the value of current common shares. Furthermore, any plan to fully privatize the entities would require the administration to navigate a divided Congress, where many lawmakers remain wary of returning to a pre-2008 model that they believe privatized profits while socializing losses.
The market's rapid reversal on Friday suggests that while traders are eager to play the "Trump trade" on GSE privatization, the institutional money remains focused on the technicalities of the exit. The administration’s plan to sell stock in Fannie and Freddie later this year, potentially raising $30 billion according to the Wall Street Journal, will serve as the first real test of whether the President’s trillion-dollar vision can survive the scrutiny of the public markets. For now, the GSEs remain in a state of limbo, their value dictated more by political headlines than by the underlying mechanics of the housing market.
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