Trump’s New Treasury Secretary to Explore Fannie Mae (OTCMKTS:FNMA) and Freddie Mac Restructuring (OTCMKTS:FMCC)

The potential restructuring of Fannie Mae (OTCMKTS:FNMA) and Freddie Mac (OTCMKTS:FMCC) is gaining momentum with President Trump’s nomination of Scott Bessent as Treasury Secretary. This development could significantly impact the future of these government-sponsored enterprises (GSEs), which have been under conservatorship since 2008.

Key Facts and Developments

1. Scott Bessent, Trump’s nominee for Treasury Secretary, supports ending the conservatorship of Fannie Mae and Freddie Mac but remains open to various approaches.
2. Bessent emphasizes that actions to end the conservatorship “should be carefully designed and executed,” without committing to a specific timeline or strategy.
3. The Federal Housing Finance Agency (FHFA) and Treasury Department recently amended the Preferred Stock Purchase Agreements (PSPAs) to facilitate an orderly release of the GSEs from conservatorship.
4. As of September 2024, Fannie Mae’s estimated net worth was $94 billion, while Freddie Mac’s stood at $59 billion.
5. The GSEs began retaining earnings during Trump’s first term, with Treasury granting permission for capital retention in 2017 and 2019.

Expert Opinions and Projections

1. Bill Ackman, CEO of Pershing Square Capital, believes Fannie and Freddie could exit conservatorship within the first two years of a second Trump administration.
2. Ackman estimates that privatizing Fannie and Freddie could generate over $300 billion in additional profits for the US government.
3. A JPMorgan Chase & Co. survey found that almost half of agency mortgage-backed securities investors expect Fannie Mae and Freddie Mac to be privatized by 2028.

Challenges and Considerations

1. The process of recapitalization and release is expected to take several years to complete, even with Congressional support.
2. Any structural changes to the GSEs, such as an explicit government guarantee, would require Congressional approval.
3. The FHFA recently finalized new affordable housing goals for Fannie Mae and Freddie Mac for 2025-2027, which may impact restructuring plans.

Investment Implications

While the potential restructuring presents opportunities, investors should consider the following:

1. Preferred vs. Common Shares: Some analysts favor preferred shares due to their anti-dilution protection in the event of equity restructuring.
2. Market Volatility: Expect increased volatility in both Fannie Mae and Freddie Mac securities as restructuring plans develop.
3. Long-term Outlook: The privatization process is likely to be complex and time-consuming, requiring patience from investors.

As the situation evolves, investors and industry observers should closely monitor official announcements and policy developments that could significantly impact the future of Fannie Mae (OTCMKTS:FNMA) and Freddie Mac (OTCMKTS:FMCC).

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