Legacy Fannie and Freddie Shareholders Might Get Wiped Out
President Donald Trump said Tuesday night that he is “working on TAKING THESE AMAZING COMPANIES PUBLIC,” referring to Fannie Mae and Freddie Mac. But he made clear that any move toward privatization would retain the government’s implicit guarantees and presidential oversight.
“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 posted on Truth Social.
That single post jolted the market. Shares of both government-sponsored enterprises (GSEs) surged to their highest levels since 2008, driven by renewed hopes for a release from federal conservatorship. But the fundamentals suggest that most outstanding shares—especially the old common and junior preferred—are still worth little or nothing.
The main reason: the government is not about to walk away from the enormous value it already holds in Fannie and Freddie.
It also left a lot of people scratching their heads. If the president explicitly backs the implicit guarantee, is it still implicit?
In an interview with CNBC’s Sara Eisen on Wednesday, Trump-picked director of the Federal Housing Finance Agency (FHFA) Bill Pulte noted that the president has not said he wants to end conservatorship. Apparently, the FHFA is considering models where Fannie and Freddie are taken public in conservatorship. The companies would benefit from Trump remaining in control of them, Pulte said.
Importantly, Pulte said the president is looking to “monetize” the government’s stakes in Fannie and Freddie. In other words: Trump isn’t giving the mortgage giants away.
Uncle Sam Owns Almost Everything
When the GSEs were rescued in 2008, the Treasury injected nearly $191 billion into the firms in exchange for senior preferred shares. Today, that stake has ballooned. According to the Congressional Budget Office, the liquidation preference on the senior preferred stock now stands at $341 billion. On top of that, the government holds warrants to acquire 79.9 percent of the common equity in each firm.
This means that if Trump wants to “take the companies public,” the federal government will almost certainly want to monetize that $341 billion claim and realize value on the warrants—especially if Trump wants to use the proceeds to offset tax cuts or fund other spending.
Some hedge funds are betting that Trump might forgive the Treasury’s senior preferred position or downplay the warrants to reward legacy shareholders. But that would contradict his clear political interest in proving that he got a great deal for taxpayers.
Capital Demands Will Dilute Existing Shares
Even before the government can realize its stake, Fannie and Freddie must be recapitalized. The Federal Housing Finance Agency (FHFA) has adopted a rule requiring that the GSEs maintain more than $300 billion in capital to be considered safe and sound. As of now, they hold only a small fraction of that amount—just over $100 billion combined.
That gap will have to be filled, most likely through public offerings of new shares. Any such offering would drastically dilute the value of existing common and junior preferred shares.
Moreover, the recapitalization can’t be separated from the broader set of reforms. As Donald Layton, former Freddie Mac CEO and current NYU scholar, points out in his four-part analysis for the Furman Center, conservatorship exit is not just a matter of recap and release. It’s reform-recap-release. That means addressing dozens of operational reforms implemented during conservatorship, creating durable regulatory frameworks to replace them, and ensuring market stability through capital rules and pricing structures.
Guarantee Fee: Another Price Tag
Then there’s the price of the guarantee. Trump’s statement reaffirming the “implicit guarantee” implies that the government will continue to provide a backstop for GSE-issued mortgage-backed securities. That guarantee is highly valuable to investors—it keeps yields low and demand high. But it comes at a cost.
Any post-conservatorship arrangement will almost certainly require Fannie and Freddie to pay a guarantee fee to the federal government in exchange for this backing. CBO estimates suggest that such a fee could bring in billions over a decade—around $11 billion, even under modest assumptions. Those payments reduce the net earnings that could be distributed to shareholders.
The Math Doesn’t Work for Legacy Investors
When you add it all up—$341 billion senior preferred stake, nearly 80 percent of common equity claimed by warrants, $200+ billion capital raise still needed, and ongoing payments for the guarantee—there’s simply not much left for holders of the old common or junior preferred shares.
The JPMorgan Asset Management analysis, published several months ago, came to the same conclusion: “The market seems to have overreacted to a vague statement from the Trump administration,” they write. They also note that there is no clear path for shareholders to realize value without the government forfeiting its claims—which seems highly unlikely.
Trump is not going to hand over the companies to hedge funds or retail speculators who bought the legacy shares. The warrants will not be canceled and the senior preferred stake held by Treasury will not be deemed already repaid. Trump wants credit for unlocking the value of the government’s stake, not leaving it on the table.
If you’re holding Fannie or Freddie legacy shares and betting on a big payday, you’re probably betting against the guy who just told you he’s in charge—and looking to make taxpayers whole.