Shares of Fannie Mae and Freddie Mac have surged as investor Bill Ackman renews his call to end the mortgage companies’ federal conservatorship. Both stocks rose more than 60% between Oct. 14 and Monday’s close, and gained about 3% on Tuesday.
Ackman, founder of Pershing Square Capital Management and an investor in both companies, told CNBC that the midterm elections may be holding up a decision. In a letter to shareholders issued Monday, he said the shares could rise tenfold from their current prices.
Fannie Mae and Freddie Mac buy mortgages from banks and other lenders, then package them into mortgage-backed securities. Their role provides liquidity to lenders and supports a secondary market for those securities.
The companies entered conservatorship in September 2008 during the financial crisis. Their shares were delisted from the New York Stock Exchange in 2010 and have traded over the counter since. Ackman argues that ending government control would increase their value and shield them from political influence.
Any exit would involve substantial financial and policy decisions. The companies face strict capital requirements and would need to be recapitalized, potentially through a common-stock offering. The Treasury Department would also have to determine how to handle its roughly $388 billion stake, held through preferred securities and warrants. Congress may need to pass legislation changing the government’s role in mortgage financing and home-loan guarantees.
Treasury Secretary Scott Bessent has said the administration could address the ownership structure “next year, the year after,” and that affordability would guide its decision. He has also said any changes should not widen the spread between agency mortgage-backed securities and Treasury securities, which could make mortgages more expensive.
Ackman has warned that political direction of Fannie Mae and Freddie Mac could affect mortgage markets. He said investors in mortgage-backed securities want clarity about how the companies will be run, and argued that becoming publicly traded companies would provide greater certainty than remaining in conservatorship.
Sources: CNBC Markets.