Fannie Mae and Freddie Mac (the Government Sponsored Enterprises or GSEs) exist to provide liquidity for the conventional conforming loan market.
A lender (bank or other mortgage lender) will lend money to buy a home. In the 1930s the bank would have a limited amount of money to loan for mortgages and would take on the risk of potential default. The government created Fannie Mae in 1938 to buy the mortgages from the bank, providing the bank with cash to lend for more mortgages. This helped support the governmentās desire to enable more people to own their homes. At the same time, Fannie Mae took on the potential risk of default. Freddie Mac was added in 1970.
Even though Fannie Mae and Freddie Mac were āgovernment sponsoredā they were public companies with stock and bonds. Their charter specifically said that the government did not support these companies.
During the housing bubble (from 2004 - 2008) many mortgages were created for high-risk borrowers but the risk was offloaded from the originators to the GSEs (and also into mortgage-backed securities that were sold on the market). When the bubble popped the GSEs were devastated.
The government brought the GSEs into conservatorship in 2008. The shareholders were wiped out but the government made the bondholders whole.
https://gemini.google.com/app/f9f1d3de1a380b46
Fannie and Freddie play a huge role in the U.S. economy. The two firms, which have been under government conservatorship since being bailed out in 2008, together implicitly back nearly half of mortgages. The most recent detailed figures for the dollar value of mortgages backed by Fannie Mae and Freddie Mac show their combined outstanding value is in the range of over $6.6 trillion as of late 2023.
Now the government is planning to return the GSEs to their original role as independent companies in a gigantic IPO. As Real Estate Mogul-in-Chief, President Trump is of course personally involved. Given Trumpās well-known unpredictability, corruption and vengeful nature the banks that will handle the IPOs are tiptoeing and shoe-kissing to get their share of the action. They donāt dare say that the GSEs may be worth less than Trump says they are for fear of being cut out of the deal.
https://www.wsj.com/finance/banking/fannie-freddieā¦
Big Banks Woo Trump for Roles on Blockbuster IPO
Planned Fannie Mae and Freddie Mac offering prompts one of the strangest ābake-offsā ever
By Corrie Driebusch, Gina Heeb and AnnaMaria Andriotis, The Wall Street Journal
ā¦
All of the major banks have been working to land roles on what could be one of the largest stock offerings in history. In doing so, the banks are wrestling with a host of novel issues, thanks to the unpredictability of Trump and the complicated nature of taking government-backed entities public. The winners stand to earn not only hefty fees but bragging rights for having worked on a deal that could reap the government billions of dollars.
Some of the bankers say their strategy has been to humor the administrationās aspirations for the offering and highlight how they would structure it to make it a slam dunk for investors, the government and the American public.
Trump officials have been envisioning IPOs that value the combined firms at roughly $500 billion and raise roughly $30 billionā¦At least one bank displeased some administration officials when it suggested that the firms should be valued below $500 billionā¦
The bankers have also been watching their every move, knowing Trump could punish their banks for any perceived slight against himā¦ [end quote]
There are many issues, including how much control the government will keep over the GSEs. Trump has muscled his way into control of public companies, let alone GSEs. Will investors want to buy shares in companies whose value is so obviously corrupted by sycophancy and whose government control policies may change with political winds in the future?
The only sure winners will be the banks that will skim the fees for the IPOs. Goldman Sachs, Citigroup, Bank of America, JPMorgan Chase, Morgan Stanley and Wells Fargo are all expected to land some sort of role.
Wendy