At last week’s confirmation hearing for Trump nominees including Federal Housing Finance Agency nominee Bill Pulte, Senator Elizabeth Warren raised the alarm about a move the Trump administration is reportedly considering: privatizing Fannie Mae and Freddie Mac. The two government-sponsored enterprises (GSEs) help make home loans more affordable and accessible through supporting the mortgage market, and privatization would be, in Warren’s words, “great for billionaires, terrible for hardworking people.”
So who are the billionaires pushing for Fannie and Freddie privatization? To understand that, we need to go back to when FHFA first took over the GSEs. In the wake of the 2008 housing crisis, the heads of some of the biggest hedge funds in the country decided to use the chaos to try to make a buck. Fannie Mae and Freddie Mac had become nearly insolvent due to the irresponsible decisions of their executives and shareholders. To sum up a very complicated story, the government stepped in and placed the two mortgage-backers into conservatorship to stabilize and restructure their operations.
Wall Street saw the takeover as an opportunity. Hedge fund investors such as Bill Ackman bought up sizable amounts of stock in Fannie Mae and Freddie Mac as their prices bottomed. Ackman and the other Wall Street investors presented their purchases as a “bet” on the possibility that these agencies would at some point become re-privatized, and their stock would be able to return to its previous highs. But that hypothetical event has more to do with political power than the contingencies of the market: What they really bet on was whether or not they would be able to sway the government, through lobbying and aggressive litigation, to implement policies which would boost the price of the stock.
Over fifteen years later, Trump is in office for the second time, and Ackman and his investor friends might finally get their chance. The Trump administration is flirting with the idea of releasing Fannie and Freddie from federal control, therefore re-privatizing these agencies. In line with Elon Musk’s efficiency cost-cutting tirade, Scott Turner, now in charge of HUD, has claimed his agency will work closely with the Treasury and congress to re-privatize the GSEs.
Regardless of the form privatization takes, investors might once again turn the housing market on its head in order to make a quick buck, while pushing the suffering onto the rest of us.
The Investors Trying To Get Trump To Privatize Fannie And Freddie
By far the biggest owner of Fannie and Freddie stock is the aforementioned Bill Ackman. Infamous for his lawsuit against Claudine Gay, betting unsuccessfully against multi-level marketer Herbalife, and using X (formerly Twitter) as part of his investment tactics, his hedge fund Pershing Square Capital Management purchased and is still sitting on a jaw-dropping 10% of Fannie Mae and Freddie Mac’s common shares.
In a tweet on December 30, 2024, Ackman publicly announced his belief that the Trump administration will privatize Fannie and Freddie, claiming the deal “…should generate more than $300 billion of additional profits to the Federal government.” He ended the tweet by proudly claiming “Trump likes big deals and this would be the biggest deal in history. I am confident he will get it done.”
Ackman has been throwing his support behind Trump for years now. In the 2024 election, Ackman donated $419,600 to the Trump 47 Committee, a joint GOP and Trump campaign fundraising committee. He has also praised president-elect Trump’s nominations, claiming he is building a “dream team.” In particular, Ackman was excited over the president-elect’s potential “restructuring” of federal agencies, which could very well include the FHFA and GSEs. In its 2023 annual report, his hedge fund Pershing Square claimed “optimism around a potential re-privatization in the event former President Trump is re-elected.”
John Paulson, who has extensive ties to Trump, is also sitting on a significant number of Fannie and Freddie shares. In the 2024 election cycle, Paulson helped raise over $50 million for Trump and made donations of his own funds. Trump and Paulson are friendly enough for Trump to have invested millions in Paulson’s hedge fund in the past.
Paulson was a contender for heading the Treasury department for Trump 2.0 and pledged to help the Trump admin by working with Elon Musk “to enact massive federal spending cuts.” Back in the first Trump term, Paulson used his ties to Trump to encourage privatization, and there is no reason to believe that his advice this time around would not follow the same line.
Even though Paulson didn’t get the job, these hedge fund investors have succeeded in getting one of their own —- hedge fund investor Scott Bessent — installed as secretary of the Treasury department. Not long into his term, Bessent is already helping Elon Musk’s DOGE team take control over the trillions of dollars that pass through the Treasury Department’s payment system and “deleting” the CFPB.
Before leading Treasury, Bessent’s investing bona fides involved running mid-tier hedge fund Key Square Group and helping destroy the British economy in what is known as the “Black Wednesday” crisis. He has reportedly bought and sold over $127 million in real estate properties.
Bessent co-hosted John Paulson’s $50 million fundraiser for Trump. Even though Paulson is not at the head of Treasury, Bessent has already proven he will prove to be a reliable ally to the MAGA clique. As head of Treasury, Bessent has claimed he is open to privatizing the GSEs.
In 2012, the Treasury instituted a “profit sweep,” whereby it appropriated all of the profit generated by the GSEs in recognition of the extent of federal support heretofore. This profit sweep, as well as the conservatorship in general, became the subject of a litany of petulant lawsuits filed by Fannie and Freddie shareholders, alongside Ackman and Paulson, in an attempt to preserve their desired returns on the shares.
Even though there was a wide-scale bailout of banks paralleled by millions of homeowners who suddenly had their homes foreclosed after the 2008 housing crash, these shareholders have gone to court to (unsuccessfully) argue, among other things, that entering the GSEs into conservatorship was illegal and they, too, should be given a government handout for their would-be profits.
Among the most committed hedge funds seeking litigation to re-coup fictitious investment losses is Bruce Berkowitz’s Fairholme Funds. While his most recent lawsuit was filed in October 2023, Berkowitz is a long-time believer in the strategy of litigating to pump his stock price: he has been filing lawsuits since the Treasury instituted its profit sweep in 2012. At some point, he even made an absurd proposal to completely liquidate Fannie and Freddie, while allowing him to buy up all of their mortgage businesses.
GSE Privatization Would Harm Everyday Americans
While these shareholders dream of increasing stock prices, the economic fallout from privatization would only make the housing crisis more severe. The National Fair Housing Alliance (NHFA) has argued that Fannie and Freddie’s signature 30-Year Fixed-Rate Home Loan (introduced during the Great Depression and still the main way most people are able to afford a house) would likely cease to exist.
Few Americans, regardless of class, would escape the enlivened flames of the crisis; anyone seeking to refinance their mortgage or buy a home for the first time would have to confront mortgage rates increasing, making it even more difficult for working class people to achieve the secure lifestyle homeownership brings.
The racial gap in homeownership rates would accordingly be stretched even wider. There are a number of consequences we likely cannot predict due to the unprecedented scale of this housing finance market privatization.
Removing the GSEs from conservatorship would undermine much of the conservatorship authority of the FHFA, threatening the possibility of the agency using those powers to further stabilize the housing market and increase access to affordable housing.
At the end of the day, ending the conservatorship is not only about a short-term stock boost, but also about power and wealth distribution. With the current arrangement, the government is able to extensively control the boards of Fannie and Freddie in relation to pre-set housing goals. This control helps introduce an element of stability to a housing market whose outcomes are a continuation of decades of racial discrimination and inequality.
In privatizing the GSEs, their boards would have extensive command over the $12 trillion housing finance market while only being accountable to shareholders like Bill Ackman. Rather than a government-controlled agency which can positively influence market outcomes, Fannie and Freddie would become another tool and avenue for “financializing” the economy into ever more exotic financial instruments in which people become pawns for investors.
Privatization would be yet another upwards re-distribution of wealth, while handing over say in a collective need — housing —- to an extremely small set of individual corporate executives and their billionaire friends.