Last summer, Trump met with the chiefs of Bank of America, Citigroup, JPMorgan Chase and Goldman Sachs at the White House to discuss the initial public offering. White House officials predicted the stock offering would happen quickly.
But six months later, the deal is still a work in progress. The government has retained a law firm, Sullivan & Cromwell, to advise on the deal, but it has not appointed a major Wall Street bank to put together the offering and sell it to institutional investors, said several people briefed on the process who were not authorized to speak publicly.
Another critical decision remains outstanding: After any stock offering, will the mortgage firms be freed from government control? Fannie and Freddie were taken over by the federal government during the 2008 financial crisis to prevent their collapse and further disruption to the housing market.
While the firms have recovered fully from the crisis and no longer require the government’s strict monitoring of their finances, they remain a critical cog in the nation’s $12 trillion mortgage market. Some officials in the Trump administration are wary of anything that could complicate Fannie’s and Freddie’s role in the flow of credit to homebuyers, said three other people briefed on the matter but not authorized to speak publicly.
Fannie and Freddie buy mortgages from banks and other lenders and package them into bonds sold to institutional investors. By buying bonds from banks, they free up capital for banks to write more loans.
Investors in an IPO may balk at the notion that the mortgage firms would essentially continue to be run by the White House via the Federal Housing Finance Agency, because what the government deems is best for the mortgage market may not always align with the interests of private shareholders.Facing pressure from voters in a midterm election year, Trump has made boosting housing affordability through lower mortgage rates a top policy goal.
And some housing experts saw last week’s announcement that Trump had ordered Fannie and Freddie to buy up to $200 billion in mortgage-backed bonds to help drive down mortgage rates as an indication the White House no longer favored ending the government conservatorship anytime soon.
If Fannie and Freddie were freed from federal control, the experts added, Trump and the White House would not be able to easily direct the so-called government-sponsored entities to buy bonds or take other measures it deemed necessary to make housing more affordable.
“It looks like the Trump team is seeing the GSEs as utilities,” said Jim Parrott, a nonresident fellow at the Urban Institute and an adviser on housing finance issues. “The more the administration comes to view them as instruments of affordability the less likely they will be to give up control of them any time soon.”
Parrott has long called for the federal government to treat Fannie and Freddie as quasi-public utilities that can be used to make the mortgage and housing markets more affordable. He has said the Trump administration should not push ahead with a big stock offering for Fannie and Freddie until it decides the future structure of the companies and their role in the mortgage market.
David M. Dworkin, president of the National Housing Conference, a coalition of affordable housing providers, said any decision to end the government conservatorship needed to be done in consultation with many industry players, including bankers, homebuilders and investors.
“It is essential the approach be transparent,” said Dworkin, a former Treasury official in the Obama and first Trump administrations.
Kush Desai, a White House spokesperson, said “restoring the American dream of homeownership after Joe Biden’s affordability disaster was a key campaign pledge for President Trump.” He added that the “administration is looking at every option to continue delivering on this pledge while protecting taxpayers.”
The main proponents of moving swiftly with an offering have been the commerce secretary, Howard Lutnick, and the FHFA director, Bill Pulte, as well as some longtime investors in shares of Fannie and Freddie, including several hedge funds. But concern about disrupting the mortgage market is one reason the Treasury secretary, Scott Bessent, is said to have taken a much more judicious approach to any new stock offering, according to three of the people briefed on the matter. (Bessent previously said that while he favored ending the government control of Fannie and Freddie he would not do anything that would increase mortgage rates.)
“Bessent may want to keep the status quo and not do a hasty stock offering,” said Wesley Lin, a professor of public policy at UCLA and a former policy adviser in the Obama and Biden administrations. “It’s a ‘let’s not rock the boat’ approach.”
The rate on the traditional 30-year mortgage currently sits at 6.06%, down about a percentage point from where it was a year ago.
