Fannie Mae (FNMA) Shares Slide Amid Privatization Debate

Nearly half of agency mortgage-backed securities (MBS) investors expect Fannie Mae (FNMA) and Freddie Mac (FMCC) to be privatized by 2028, according to a survey conducted by JPMorgan Chase & Co (JPM). The results provide insight into a community with a direct stake in the fate of the government-sponsored enterprises (GSEs), which have remained in conservatorship since their 2008 bailouts. Approximately 26% of respondents believe privatization will never occur, while another quarter anticipate it happening between 2029 and 2032.

President Donald Trump has long advocated for releasing Fannie and Freddie from government control, though the topic was notably absent from his 2024 campaign platform. The logistics of privatization remain complex, with potential outcomes hinging on factors such as capital requirements and whether privatization includes an explicit government guarantee. These scenarios significantly influence the risk premiums on MBS, which ultimately affect mortgage rates for U.S. homeowners.

• 49% of investors expect Fannie Mae and Freddie Mac to be privatized by 2028.
• Another 26% believe privatization will never occur.
• Survey results indicate potential impacts on MBS risk premiums and mortgage rates.

• Privatization with minimal capital levels could widen risk premiums by 45 basis points or more.
• An explicit government guarantee in privatization scenarios could tighten risk premiums slightly.
• Fannie Mae shares have surged since Trump’s election, despite remaining speculative.

• Privatization outcomes depend on future capital requirements and Treasury Department support.
• IPO proposals for Fannie Mae by 2026 and Freddie Mac by 2027 add urgency to the debate.
• Investors are closely watching the impact of potential policy changes on mortgage markets.

• Nearly half of MBS investors expecting Fannie Mae and Freddie Mac to be privatized by 2028 reflects growing confidence in the feasibility of transitioning the GSEs out of government control, potentially unlocking shareholder value.
• Privatization could allow Fannie Mae and Freddie Mac to raise significant capital, enabling them to diversify their offerings beyond mortgages and compete more effectively with private financial institutions.
• An IPO for Fannie Mae by 2026 and Freddie Mac by 2027 could generate substantial federal revenue while reducing taxpayer exposure to housing market risks.
• Privatization with an explicit government guarantee could tighten MBS risk premiums, stabilizing mortgage rates and benefiting U.S. homeowners.
• Trump’s administration has historically supported privatization initiatives, signaling potential policy momentum that could accelerate the process and attract investor interest.

• The complexity of privatizing Fannie Mae and Freddie Mac, including capital requirements and government guarantees, presents significant logistical and regulatory hurdles that could delay or derail the process.
• Privatization without sufficient capital reserves could widen MBS risk premiums by up to 45 basis points, increasing mortgage costs for U.S. homeowners and dampening housing market activity.
• Uncertainty surrounding the timeline for privatization creates volatility in GSE stock prices, making them speculative investments with high risks for shareholders.
• Critics argue that privatization could reduce access to affordable mortgage loans for middle-income and underserved communities, undermining the GSEs’ public mission.
• Broad investor skepticism about the feasibility of privatization, as evidenced by 26% of survey respondents believing it will never occur, highlights persistent doubts about political and economic challenges.

The survey, conducted from Jan. 16 to Jan. 23, included 126 respondents and highlighted differing views on how privatization might unfold. Scenarios such as privatization with current capital levels could significantly increase MBS risk premiums, while stronger capital requirements or government guarantees would mitigate those effects. Ultimately, these outcomes will shape mortgage costs for millions of Americans.

Notably, high-profile investors, including hedge fund chief Bill Ackman, have pushed for initial public offerings for Fannie Mae and Freddie Mac within the next four years. Shares of the GSEs have gained substantially since Trump’s election, though they remain speculative investments. Fannie Mae’s common shares were down over 15% on Friday, reflecting the volatile nature of this ongoing debate.