Fannie Mae, Freddie Mac IPO in the Works

After months of endless discussions around Fannie Mae and Freddie Mac, their endgames appear to be coming into focus.

The Trump administration is pursuing an initial public offering for the two government-controlled enterprises, the Wall Street Journal reported. The plan to sell the mortgage giants’ stock could start unfolding by the end of the year.

The administration’s plan would value the two entities at a combined $500 million or more, though it’s unclear if they would go public together or independently. Also unclear is whether or not they would remain under conservatorship, an idea proposed by Federal Housing Finance Agency director Bill Pulte in the past.

Roughly 5 percent to 15 percent of their stock may be sold under the discussed proposal. The Treasury Department holds warrants to buy roughly 80 percent of Fannie and Freddie common stock, while also holding senior preferred shares. Others own junior preferred shares or common stock.; the government would be responsible for selling the stock in an IPO.

The administration believes the offering could raise roughly $30 billion. The IPO would be one of the biggest in history, should it come to fruition.

That’s still far from a sure thing. Previous Freddie and Fannie privatization attempts have gone nowhere.

Privatization has been under consideration since the mortgage giants fell under government control in 2008. Even Trump attempted to take the enterprises private during his first administration, only for the effort to collapse in the waning days of his term.

There’s also concern that such a move could destabilize the mortgage market. In the past, the president has said the government would hold onto its implicit guarantees to backstop the agencies; that could be critical, though critics of previously discussed plans have pushed for an explicit guarantee from the government.

Stocks for both organizations surged following the report of the potential IPO.

— Holden Walter-Warner