By Niket Nishant and Manya Saini(Reuters)
The shares of Fannie Mae and Freddie Mac, the mortgage giants that have been under U.S. government control since 2008, reached multi-year highs on Friday after federal agencies announced a framework for their "orderly" release from conservatorship.
A Step Towards Private Control
The U.S. Treasury Department and the Federal Housing Finance Agency (FHFA) revealed on Thursday that they had amended their agreements with Fannie Mae and Freddie Mac to ensure that their eventual exit from conservatorship is not disruptive. This move comes as a significant step towards returning the companies to private control.
A Framework for Release
The agencies stated that they would solicit public comments before either of the so-called "government-sponsored enterprises" (GSEs) is released from federal control. This approach will allow for transparency and input from stakeholders, ensuring that the process is fair and efficient.
Background on Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac were created by Congress to support the housing market by providing affordable mortgage financing. However, they were severely bruised during the 2008 financial crisis and required a bailout with taxpayer funds. In return for the aid, the Treasury received preferred shares in the companies, which paid billions of dollars in dividends over the years.
Efforts to Return to Private Control
Since their bailout, efforts have been made to return Fannie Mae and Freddie Mac to private control. This includes previous attempts under the administration of President Donald Trump. The latest update comes just weeks before Trump is scheduled to take office for a second term.
Statement from the Treasury Department
According to the statement released by the U.S. Treasury Department, "Treasury will consult with the President prior to consenting to a release of the GSEs from conservatorship." This indicates that the decision to release Fannie Mae and Freddie Mac from conservatorship will be made in consultation with the incoming administration.
Analyst Expectations
Earlier this week, billionaire Bill Ackman expressed his expectation that the incoming administration would remove the GSEs from conservatorship. Analysts had also echoed similar sentiments, with KBW writing in a note in November that "We think GSE privatization could be on the agenda during the second Trump administration."
Market Reaction
The market reacted positively to the news, with Fannie Mae’s shares surging 24.4% to $4.23, hitting their highest since 2017. Freddie Mac’s shares climbed 23.2% to $4.15, reaching levels not seen in over eight years.
Conclusion
The release of Fannie Mae and Freddie Mac from conservatorship is a significant milestone for the mortgage giants. The framework announced by federal agencies provides a clear path forward for their eventual return to private control. With the incoming administration expected to play a key role in this process, investors are optimistic about the future prospects of these companies.
Key Takeaways
- Fannie Mae and Freddie Mac shares surged to multi-year highs after federal agencies revealed a framework for their release from conservatorship.
- The U.S. Treasury Department and the Federal Housing Finance Agency (FHFA) amended their agreements with the companies to ensure an "orderly" exit from conservatorship.
- Public comments will be solicited before either of the GSEs is released from federal control, ensuring transparency and input from stakeholders.
- Efforts to return Fannie Mae and Freddie Mac to private control have continued since their bailout in 2008, including previous attempts under President Trump’s administration.
What’s Next
As the process unfolds, investors will be watching closely for further developments. With the incoming administration expected to play a key role in this process, it is likely that Fannie Mae and Freddie Mac will continue to attract attention from investors and analysts alike. As the mortgage giants move closer to their eventual return to private control, one thing is clear: the future looks bright for these companies.