Financial institutions on Wall Street vie for approval from the Trump administration in pursuit of a monumental Initial Public Offering (IPO) involving Fannie Mae and Freddie Mac
The Treasury Secretary has announced plans to take Fannie Mae and Freddie Mac, two government-sponsored enterprises that play a crucial role in the U.S. mortgage market, public in the fall or winter of 2025. This move could potentially generate a significant return for taxpayers, with initial sales estimated to be around $30 billion, a figure comparable to the IPO of Saudi Aramco.
Fannie Mae and Freddie Mac were taken into conservatorships by the Federal Housing Finance Agency in 2008 to reduce losses, stabilize their operating structures, and eventually end the conservatorship by re-privatizing them. Since then, they have returned to profitability and have paid dividends totaling over $301 billion to the Treasury as of July 2020.
The Treasury Secretary aims to balance a return for taxpayers with keeping mortgages affordable. To address the housing affordability crisis, the Secretary has mentioned that one of his 'big projects' this fall will be focusing on this issue. He also emphasized the importance of keeping the spread between mortgages and Treasuries flat or even bringing it down to address the housing affordability crisis.
In a recent development, Fannie Mae and Freddie Mac are reportedly considering cryptocurrency as an asset. However, no further details about this potential move have been provided.
The administration's focus is on getting a return on its investments in Fannie and Freddie, rather than on raising capital for the entities. President Donald Trump is weighing plans to deal with the conservatorships of Fannie Mae and Freddie Mac.
Several Wall Street banks, including Bank of America, Citigroup, JPMorgan, and Goldman Sachs, are reportedly visiting the White House to persuade President Trump to give them the business of taking Fannie Mae public again.
Fannie Mae and Freddie Mac purchase mortgages from lenders and either hold them within their portfolios or bundle those loans into mortgage-backed securities (MBS) that can be sold to investors. This process provides liquidity to lenders and reduces risk for lenders and investors in the U.S. mortgage market.
The housing market is of great importance in the U.S., and there is an ongoing affordability crisis, as stated by Treasury Secretary Scott Bessent. Addressing this crisis will be one of the Secretary's key priorities this fall. The initial public offering (IPO) of Fannie Mae and Freddie Mac is expected to provide a significant boost to the housing market and the economy as a whole.
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