The Trump administration wants an IPO for Fannie Mae and Freddie Mac sometime this year, according to the Wall Street Journal. What sounds like privatization would likely not really be privatization, and the move risks setting up a similar scenario to the one that ended in disaster in 2008.
Congress created Fannie Mae in 1938 and Freddie Mac in 1970. Their purpose was to provide liquidity for the mortgage market by purchasing mortgages from financial institutions and then packaging them into securities that are sold to investors.
They used to be private corporations — sort of. They were publicly traded companies, but they were government sponsored and had enormous lines of credit with the Treasury. The implicit government backing made them ripe for corruption. The theory many investors believed — which was proven correct in 2008, following the bursting of the housing bubble — is that while Fannie and Freddie’s profits were private, their losses would be socialized when push came to shove.
In 2008, they were taken into conservatorship by the federal government. They were indeed too big to fail. And they have remained under conservatorship ever since. That means their private shareholders lack full rights and the government ultimately directs the firms’ operations.
Before the 2008 crisis, Fannie and Freddie owned or guaranteed about 40 percent of U.S. mortgages. Today, that proportion is roughly the same. So it’s not as though the firms aren’t still too big to fail.
A major corporation operating with the implicit backing of U.S. taxpayers is not private industry. Capitalism operates under the profit-and-loss system. The market signal of a loss is just as important as the signal of a profit. Pretending to be a private business while being insulated from failure is a lie, and it turned out to be a destructive one to the overall economy.
Many details of how the administration would go about the IPO remain to be seen. One stated purpose is to raise revenue. The WSJ story says that officials think they could get $30 billion from selling shares and that the companies themselves are worth $500 billion.
Potentially jolting the entire mortgage market is not worth a one-time $30 billion revenue boost. That revenue would be less than half a percent of estimated federal spending this year. Viewing the possible IPO through that lens does not speak well of the effort.
A Truth Social post from Trump showed AI-generated art of him standing in front of a poster that says “The Great American Mortgage Corporation” with the ticker symbol “MAGA.” If that’s any indication of how independent the post-IPO firms would be — i.e., not at all — then it’s just more of the same for U.S. housing policy.
The U.S. housing sector is far too governmentalized already. No other country has government mortgage insurance, government-backed mortgage securities, and government-backed firms in housing finance. Free market reforms would involve shrinking or eliminating Fannie and Freddie by removing the legal preferences they have over their fully private competitors and repealing their congressional charters. In other words, instead of going through the effort to complete a Freddie and Fannie IPO, the Trump administration would be better off winding down the entities altogether.
The U.S. already tried quasi-private Fannie and Freddie. It didn’t go well. Instead of going back to what didn’t work, the administration should be looking for ways to get the government out of housing instead.