The Trump administration's goal of releasing housing giants Fannie Mae and Freddie Mac from government control will take far longer than many investors realize, and there are underappreciated risks for retail traders who've driven a threefold surge in their shares, according to a new Bloomberg Intelligence report.
It will take "months if not years" to complete critical steps such as revising the capital requirements for the two government-sponsored enterprises, the report says. Bloomberg Intelligence estimates there's a roughly one-in-three chance the job won't get done before President Donald Trump leaves office — and says the chances of that outcome are rising.
Trump and key housing officials have vowed repeatedly to return Fannie and Freddie to public markets, nearly two decades after they were bailed out during the 2008 financial crisis and taken into conservatorship. Treasury Secretary Scott Bessent on Tuesday said the administration is working "very deliberately" toward that goal.
But given the number of hurdles involved, BI says the Treasury Department would need to make it a top priority for potentially more than a year to pull it off. And even if those efforts succeed, outsiders betting on a big payday are underestimating the possibility that the government takes steps along the way that all but wipe out the value of their shares, according to the report authored by Bloomberg Intelligence's Ben Elliott.
"The Herculean task of releasing Fannie Mae and Freddie Mac from government control and issuing new shares is falling behind an ambitious schedule and will be harder to achieve than the market currently believes," the report says.
Capital shortfall
The challenge for the administration in releasing the GSEs is that they have nowhere near enough capital, at least relative to their mountains of debt, to offer any new shares to the public. The administration would have to take several major actions to reduce that capital shortfall.
The first involves the $355 billion that the US Treasury still demands to be paid by the GSEs as compensation for its 2008 bailout of Fannie and Freddie. No public offering could succeed as long as that massive debt overhang remains.
The Treasury's "most straightforward path" to removing that debt, Bloomberg Intelligence says, is to convert it into shares of regular stock known as common equity. It assigns 65% probability to that outcome.
Converting the debt would be unwelcome news for investors who've massively bid up the common equity of Fannie and Freddie, as it would significantly reduce the value of existing shares. Common stockholders could be diluted by as much as 90%, Bloomberg Intelligence said.
One of the biggest owners of Fannie and Freddie's common shares is hedge-fund billionaire Bill Ackman, who has aggressively argued for Treasury to reclassify the dividends the GSEs have paid over the years as debt payments, and forgive them. The BI report pegs the chance of that happening at 15%.
Even if the government were to convert its enormous stake, that would still leave Fannie and Freddie nearly $100 billion short of meeting their current capital requirements, Bloomberg Intelligence said. It would be necessary then to relax those rules, which were last adjusted in 2023 and are known as the Enterprise Regulatory Capital Framework.
Bureaucratic obstacles
But doing so isn't easy. Changes to the ERCF require a lengthy public comment process and navigating bureaucratic obstacles, and it likely would take until 2027 to get done, the BI report says, calling it perhaps the single biggest hurdle to exiting conservatorship.
"Making changes to the ERCF is a relatively burdensome regulatory process that's likely to take the better part of a year," the report says.
The push to release the companies from government control also faces political hurdles, as the Trump administration seeks to assure voters
"If the Trump administration tries to privatize the GSEs, investors will likely require stronger credit enhancements or wider spreads," the BI report notes. "Any of these would mean additional costs for the GSEs, which would likely be passed through to the borrower via higher mortgage rates."
