TL;DR
- Hedge funds led by Bill Ackman and Carl Icahn could see massive returns if Fannie Mae and Freddie Mac are spun off from U.S. government control.
- The Trump administration plans to take both mortgage giants public, ending a 17-year conservatorship.
- Critics argue the move could raise mortgage rates and limit access to affordable housing.
- Fannie and Freddie have repaid $301 billion to the government, but the $190 billion bailout obligation still gives the Treasury a preferred stake.
- Experts warn this transition could disrupt the $12 trillion U.S. housing finance market.
Trump’s Spin-Off Push Rekindles Old Bets
The Trump administration has revived plans to take Fannie Mae and Freddie Mac public, a move that could finally deliver massive gains for hedge funds that invested in the companies after the 2008 financial crisis. These government-sponsored entities (GSEs) have been under federal conservatorship since the bailout era, with the U.S. Treasury holding senior preferred shares that block profits from reaching common shareholders.
Hedge funds like Pershing Square, Icahn Enterprises, and Paulson & Co. made calculated, long-term bets on a future return to the private market. Now, as Trump signals a renewed push to release the GSEs, those speculative positions may finally pay off.
“We have been leading the charge on behalf of all (Fannie and Freddie) shareholders,” said Bill Ackman, founder of Pershing Square Capital, via social media.
Fannie & Freddie Financial Snapshot
| Metric | Value |
| Government Bailout (2008) | $190 billion |
| Dividends Repaid | $301 billion |
| Combined Net Worth | $150+ billion |
| Market Impact | 50%+ of U.S. home loans |
| Share Price Surge (Past Year) | Fannie: +500%, Freddie: +400% |
Source: Federal Housing Finance Agency
How the System Works—and Why It’s Complicated
Fannie Mae and Freddie Mac buy mortgages from lenders, package them into mortgage-backed securities (MBS), and sell them to investors. This liquidity model underpins the American mortgage system, keeping rates low and lending channels open.
However, their federal conservatorship status—imposed during the 2008 crisis—prevents shareholder profits. The Treasury holds senior preferred stock, giving it repayment priority until the $190 billion bailout is extinguished.
Bill Ackman and others argue that the companies have overpaid, contributing $301 billion in dividends over 17 years. They now want the companies released from federal control—and their shares monetized.
A Record-Breaking IPO?
Experts believe a spin-off would likely involve a record-setting IPO. According to Lori Goodman at the Urban Institute, Fannie and Freddie’s public reentry could eclipse the $26 billion IPO of Saudi Aramco, the largest in history.
“This is an enormously complicated undertaking,” said Goodman.
Yet the risks remain stark. Mortgage analysts warn that removing the government backstop could rattle investor confidence in mortgage-backed securities—resulting in higher rates for consumers, especially low-income borrowers.
The Political Backlash
While hedge funds cheer the Trump proposal, Democrats are pushing back hard. Last week, a group of Senate Democrats sent a letter to William Pulte, Director of the Federal Housing Finance Agency (FHFA), urging him to pause the privatization effort.
“We have serious concerns that you plan to make significant changes…that would put investor profits over the homes of millions of Americans,” the letter stated.
Democrats argue that any spin-off plan would elevate borrowing costs, hurt housing affordability, and disproportionately affect first-time buyers.
Trump attempted a similar move during his first term but failed. His latest social media posts indicate he intends to retain a “government guarantee” to soothe investor concerns.
“I am working on TAKING THESE AMAZING COMPANIES PUBLIC,” he posted. “The U.S. Government will keep its implicit GUARANTEES.”
Debt Forgiveness: A Controversial Flashpoint
Analysts say the linchpin in this standoff is debt forgiveness. Currently, the $190 billion owed to the government must be repaid before private shareholders can profit. Ackman and his allies argue this debt should be nullified given the $301 billion already paid in dividends.
“(Fannie and Freddie) shareholders are simply seeking credit for payments that have already been made,” Ackman stated.
But financial experts aren’t convinced. According to Bose George, Managing Director at Keefe, Bruyette & Woods, “on an economic basis, the private shareholders’ equity is about negative $200 billion.”
In other words, hedge fund investments remain speculative unless the government writes off the bailout balance, an action that could spark further political uproar.
Market Implications: Consumers May Feel the Pinch
For the average homebuyer, this financial engineering translates to higher mortgage rates. Without the U.S. government’s implicit guarantee, MBS investors may demand higher yields, which lenders would pass along to borrowers.
“You can’t tamper with the government guarantee without upsetting that huge market,” warned Goodman.
Rising mortgage rates would come at an especially difficult time. Since the Fed began raising rates in 2022, housing affordability has plunged. Another round of rate hikes—this time triggered by policy shifts—could exacerbate the crisis.
What’s Next?
As Trump and his allies push for privatization, and hedge funds circle a potential windfall, the U.S. housing market stands at a crossroads. The next administration will need to balance:
- Investor returns for large hedge fund stakeholders,
- Government exposure to future crises,
- Affordability and access for homebuyers,
- And market stability across trillions in mortgage-backed securities.
Critics like Norbert Michel of the Cato Institute warn that any plan must avoid recreating the “privatized profits and socialized losses” system that contributed to the 2008 meltdown.
“That was a bad system. We should not have that system,” Michel concluded.For now, the spin-off remains a speculative opportunity—a high-stakes gamble with consequences far beyond Wall Street.
