(Bloomberg) -- President Donald Trump said that he's giving "very serious consideration to bringing Fannie Mae and Freddie Mac public" after more than a decade of government control.
"Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH, and the time would seem to be right," Trump wrote late Wednesday on his Truth Social platform. "Stay tuned!"
He added that he would consult with Treasury Secretary Scott Bessent along with Commerce Secretary Howard Lutnick and Bill Pulte, the director of the Federal Housing Finance Agency, which oversees Freddie and Fannie.
Fannie Mae shares surged as much as 38% at the open, while Freddie Mac jumped as much as 34%.
The companies, which play a crucial role in the market for mortgage-backed securities, have been under government conservatorship since the 2008 financial crisis. Fannie and Freddie have both returned to steady profitability, with earnings being retained.
Hedge funds and other investors have called for the government to release the two entities from conservatorship, which could provide a windfall for shareholders — including the government itself. Santander US Capital Markets strategist Steven Abrahams wrote in a Thursday note that a public offering of the two entities could total $382 billion, making it one of the biggest initial public offerings ever.
Many complex details would have to be worked out for any such plan, including what stake would initially be offered in any sale, and how investors who hold existing shares — which still trade — would be treated.
Ben Elliott, Bloomberg Intelligence industry analyst, said Trump could take "definitive, irreversible steps" to end the conservatorship "but his administration can't achieve a successful public offering unilaterally or overnight."
Revenue source
Trump's comments came shortly after he met with a group of House conservatives and a release could help provide billions to assuage concerns among fiscal hawks about the deficit.
The move could also provide a boon to allies like hedge fund manager Bill Ackman, whose Pershing Square Capital Management has invested in the entities. Ackman has argued that the two should be released, something that he said would be the "biggest deal in history." He has predicted the US government would generate a profit of about $300 billion.
Yet critics have argued that any such decision comes with some risks, especially over how much of a government guarantee Fannie and Freddie would still have. Investors could become more wary of buying mortgage-backed securities if the government's backing of Fannie and Freddie is lessened and may end up demanding extra yield as compensation, which would put upward pressure on mortgage rates.
Those rates could potentially increase 0.5% percentage points or more, some investor surveys have indicated. Last week, the average rate on a 30-year, fixed-rate mortgage was 6.81%, according to Freddie Mac.
"The form of the government guarantee will be critical to watch, if plans to reform Fannie and Freddie move forward," said Yunkai Wang, a strategist at Citigroup Inc. "Investors will now be watching to see what hints Bessent or Pulte give."
'Carefully Planned'
Pulte said in February during a congressional hearing that any effort to release the entities must be "carefully planned" to make sure the housing market remains safe without pressure on mortgage rates. Bessent has also emphasized that plans for Fannie and Freddie would depend on the implications for mortgage rates.
In an interview with Bloomberg Television earlier this month, Pulte said his focus was on "driving performance in the business."
"Right now what we're doing is making sure these businesses are actually functioning as businesses, where people would find them attractive," Pulte said.
--With assistance from Sonali Basak, Katherine Chiglinsky, Derek Wallbank and Elena Popina.
(Updates with additional context throughout.)
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