Fannie Mae, Freddie Mac IPOs could raise mortgage rates - report

[Shares Of Freddie Mac And Fannie Mae Continue Sharp Decline]
Chip Somodevilla

Allianz SE's Pacific Investment Management Co. warned that the Trump administration's proposal to sell new shares of Fannie Mae [https://seekingalpha.com/news/4482674-fannie-mae-freddie-mac-stocks-spike-on-report-trump-prepares-ipo-later-this-year] (OTCQB:FNMA [https://seekingalpha.com/symbol/FNMA]) and Freddie Mac (OTCQB:FMCC [https://seekingalpha.com/symbol/FMCC]) could result in higher mortgage rates if the debt issued by the mortgage giants loses the government's backing.

Libby Cantrill, head of Pimco's public policy, wrote that unless the sale is structured to preserve the government's commitment to financially support the institutions, investor demand may wane for the mortgage-backed securities that they sell, as reported [https://www.bloomberg.com/news/articles/2025-08-15/trump-s-fannie-freddie-stock-offer-risks-higher-mortgage-rates-pimco-warns?srnd=homepage-americas] by Bloomberg on Friday. That would end up making mortgages more expensive for millions of people in an era where home affordability is already a challenge.

Citigroup strategists estimated recently that mortgage rates are likely to increased by 0.1-0.2 percentage points after privatization. It is unclear at this point whether the government would completely privatize Fannie Mae (OTCQB:FNMA [https://seekingalpha.com/symbol/FNMA]) and Freddie Mac (OTCQB:FMCC [https://seekingalpha.com/symbol/FMCC]) through the proposed IPOs that could raise about $30B later this year.

However, President Donald Trump and some in his administration have espoused releasing the mortgage guarantors from government control, which they've been subject to since the 2008 financial crisis.

Fannie (OTCQB:FNMA [https://seekingalpha.com/symbol/FNMA]) and Freddie (OTCQB:FMCC [https://seekingalpha.com/symbol/FMCC]) don't originate mortgages. Rather, they buy mortgages from lenders, bundle them and repackage them into mortgage-backed securities, which they sell. The government's support of the securities means that investors demand a relatively small spread for the securities, which helps to keep mortgage rates contained.

Both government-sponsored enterprises ((GSEs)) already trade publicly on the over-the-counter markets.

As expressed in a note [https://www.pimco.com/us/en/insights/the-future-of-the-gses-do-no-harm]she wrote in May, Cantrill worries that privatizing the GSEs could break the current process. "Don’t fix what’s not broken: We believe that keeping Fannie and Freddie in conservatorship would ensure stability and liquidity, and is ultimately a better deal for the U.S. taxpayer," she wrote.

Fannie Mae (OTCQB:FNMA [https://seekingalpha.com/symbol/FNMA]) stock rose 2.8% and Freddie Mac (OTCQB:FMCC [https://seekingalpha.com/symbol/FMCC]) shares climbed 1.4% in midday Friday trading.

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* Bill Ackman proposes combining Fannie Mae and Freddie Mac [https://seekingalpha.com/news/4482940-bill-ackman-proposes-combining-fannie-mae-and-freddie-mac]