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Trump to IPO GSEs? Details to Follow...
- Aug 9
- 6 min read
Updated: Aug 12
August 9, 2025 | Updated | On Friday last week, the Wall Street Journal reported that the Trump Administration is considering an initial public offering for the government-sponsored enterprises, Fannie Mae and Freddie Mac, later this year. The WSJ cited Trump Administration officials close to the matter, probably one of the troika we discussed in an earlier missive (“Update: Is GSE Release Really on Hold?”).
We picked up some Fannie Mae common shares as the GSEs sold off recently. A lack of love in the financial media and from the White House is the proximate cause of the weakness in both stocks over the past 90 days. This was all a function of the total focus by the Trump Administration on taxes and the budget. A one month chart of Fannie Mae is below c/o YahooFinance.
We are scheduled to appear on YahooFinance ~ 3:40 PM ET Monday August 11th to talk about the prospect for GSE release. And we'll be speaking from the Western Secondary Conference sponsored by the California Mortgage Bankers Association. Do come say hello.
Now that the OBBB is signed into law, however, the White House is moving on to other matters in that daily quest to be top of the news, every day. The fact that the relevant players still have not been confirmed by the Senate does not quench the burning desire for media attention. Talking about an equity offering before a prospectus is even filed with the SEC is not a problem when your first objective is to dominate the media conversation, every single day.
And speaking of media, we’ll be featuring a Summer Special as Artist Expansion founder Michael Whalen reports from the content trenches on the collapse of streaming as a business model for large public media companies. Our readers will recall that Michael predicted this very outcome before COVID, in 2017 (“The Economics of Content: Michael Whalen”). It’s nice to be right.
There was not a lot of really new material in the Friday WSJ report, but it did move the market for two penny stocks a lot. Katy O’Donnell, now at Bloomberg but then at Politico, gave us the basic outline of GSE release back in April.
WSJ did say the companies could be valued at $500 billion combined, again attributed to unnamed sources. The IPO could involve selling 5%-15% of the companies’ shares and raise $30 billion, the Journal reported. Perhaps SEC Chairman Paul Atkins will ask who in the Trump Administration is speaking the media prior to a large public offering of securities?
The $30 billion target for cash raised in a GSE IPO is pathetic and only confirms our view that the Treasury should repurchase the GSE voting common and issue new preferred to raise hundreds of billions in proceeds. If we keep the US Treasury as the majority common shareholder and finance the capital structure with new senior preferred, the Trump Administration could raise $500 billion easily and we don't need to discuss implicit guarantees. Remember, banks are retiring preferred shares and the Street is desperately short of quality duration.
We have taken a flutter in Fannie Mae, this as several mortgage firms have blown past the GSEs in terms of 3 month market gains, but the thesis remains the same. This is a trade, IOHO, primarily because we still expect the common to be diluted heavily when 1) the government exercises its stock option, diluting existing shareholders and 2) the government issues even more shares to account for the liquidation preference, again diluting all of the existing holders.
In addition to the concerns about dilution, we still need a lot of detail about the business models going forward and possible asset sales. Merging the two entities together and possibly selling the multifamily book ahead of the offering are two changes that would be positive for the enterprises, IOHO, but playing games with the residential portfolio could be very negative for the valuation. The big residential loan book and the implied ownership of the conventional servicing strip are huge positives for Fannie and Freddie.
For the record, we believe that the GSEs managed astutely as private conduits for conventional mortgages, are worth more than the WSJ reports. One of the big unknowns for the GSEs, however, is whether the Trump Administration will narrow the credit footprint of the GSEs, shedding any “mission lending” in favor of going up market in terms of loan quality. What is the average guarantee fee for the GSEs going to be post-release? Will Congress still be taking 10bp off the top? Indeed, we still think that Fannie and Freddie will explicitly retain their servicing asset (MSR) post-release to offset the cost of the GSE tax by Congress.
And remember, so long as the US owns at least 50% of the common shares of Fannie and Freddie, we don’t have to talk about that other favorite Washington idiocy, implicit guarantees. Once we go below 50%, then Moody’s will rate Fannie and Freddie as private finance companies, not sovereign credits as today. Indeed, our expectation is that a fully privatized GSE market will have an implicit guarantee for the secured MBS, but not for either issuer. Think “A” for post-release issuer rating for both GSEs and no more housing mission, period.
We’ve always said that an honest LO will first take a low income borrower to the FHA market, where the execution can be half a point below conventional mortgage rates. The loan level pricing adjustments (LLPAs) of the GSEs, which value loans based upon FICO score and loan-to-value (LTV) ratio, make it absurd for policymakers to pretend that the GSEs can perform a “housing mission.”
The FHA does not risk price loans. They just buy everything and let the good loans subsidize the bad. Ginnie Mae only charges 6bp to guarantee an MBS. The GSEs charge issuers over 50bp to cover the loan and the MBS, including various “extra” fees for things like loan repurchase insurance. How much will the GSEs charge issuers post-release? That is the question.
The big risk to the GSEs is that the conventional market is being squeezed by inflation from above, while affordability pressures are forcing low-income borrowers back to the FHA market and Ginnie Mae. Banks led by JPMorgan (JPM) and large investors in the credit and insurance sectors like Apollo (APO) and PIMCO are already buying larger loans above the conforming limit at prices where the private GSEs cannot compete.
Meanwhile, the big competitive advantage of Ginnie Mae is pushing FHA/VA/USDA market share (28% today) towards 30% of all residential mortgages. In fiscal year 2008, Ginnie Mae's market share rose to 18.8%. This was a significant increase from 4.4% in 2007. In 2008, Ginnie Mae also became the second-largest issuer of agency mortgage-backed securities as the big banks and GSEs stepped back from the conventional market.
A couple of our past comments on the GSEs are below.
Update: Is GSE Release Really on Hold?
Kamikaze GSE Release? Oh Yeah…
Critiquing Bill Ackman Statement on GSE Release
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