It was supposed to be one of most consequential I.P.O.s in years, and President Trump wanted the nation’s biggest investment banks to hash out a plan to sell shares of the government-controlled mortgage giants Fannie Mae and Freddie Mac on a major stock exchange.
Last summer, Mr. Trump met with the chiefs of Bank of America, Citigroup, JPMorgan Chase and Goldman Sachs at the White House to discuss the initial public offering. White House officials predicted the stock offering would happen quickly. .
But six months later, the deal is still a work in progress. The government has retained a law firm, Sullivan & Cromwell, to advise on the deal, but it has not appointed a major Wall Street bank to put together the offering and sell it to institutional investors, said several people briefed on the process who were not authorized to speak publicly.
Another critical decision remains outstanding: After any stock offering, will the mortgage firms be freed from government control? Fannie and Freddie were taken over by the federal government during the 2008 financial crisis to prevent their collapse and further disruption to the housing market.
While the firms have recovered fully from the crisis and no longer require the government’s strict monitoring of their finances, they remain a critical cog in the nation’s $12 trillion mortgage market. Some officials in the Trump administration are wary of anything that could complicate Fannie’s and Freddie’s role in the flow of credit to home buyers, said three other people briefed on the matter but not authorized to speak publicly.
Fannie and Freddie buy mortgages from banks and other lenders and package them into bonds sold to institutional investors. By buying bonds from banks, they free up capital for banks to write more loans.
Investors in an I.P.O. may balk at the notion that the mortgage firms would essentially continue to be run by the White House via the Federal Housing Finance Agency, because what the government deems is best for the mortgage market may not always align with the interests of private shareholders.
Facing pressure from voters in a midterm election year, Mr. Trump has made boosting housing affordability through lower mortgage rates a top policy goal.
And some housing experts saw last week’s announcement that Mr. Trump had ordered Fannie and Freddie to buy up to $200 billion in mortgage-backed bonds to help drive down mortgage rates as an indication the White House no longer favored ending the government conservatorship anytime soon.
If Fannie and Freddie were freed from federal control, the experts added, Mr. Trump and the White House would not be able to easily direct the so-called government-sponsored entities to buy bonds or take other measures it deemed necessary to make housing more affordable.
“It looks like the Trump team is seeing the G.S.E.’s as utilities,” said Jim Parrott, a nonresident fellow at the Urban Institute and an adviser on housing finance issues. “The more the administration comes to view them as instruments of affordability the less likely they will be to give up control of them any time soon.”
Mr. Parrott has long called for the federal government treat Fannie and Freddie as quasi-public utilities that can be used to make the mortgage and housing markets more affordable. He has said the Trump administration should not push ahead with a big stock offering for Fannie and Freddie until it decides the future structure of the companies and their roll in the mortgage market.
David M. Dworkin, president of the National Housing Conference, a coalition of affordable housing providers, said any decision to end the government conservatorship needed to be done in consultation with many industry players, including bankers, homebuilders and investors.
“It is essential the approach be transparent,” said Mr. Dworkin, a former Treasury official in the Obama and first Trump administrations.
Kush Desai, a White House spokesman, said “restoring the American Dream of homeownership after Joe Biden’s affordability disaster was a key campaign pledge for President Trump.” He added that the “administration is looking at every option to continue delivering on this pledge while protecting taxpayers.”
The main proponents of moving swiftly with an offering have been the commerce secretary, Howard Lutnick, and the F.H.F.A. director, Bill Pulte, as well as some longtime investors in shares of Fannie and Freddie, including several hedge funds. But concern about disrupting the mortgage market is one reason the Treasury secretary, Scott Bessent, is said to have taken a much more judicious approach to any new stock offering, according to three of the people briefed on the matter. (Mr. Bessent previously said that while he favored ending the government control of Fannie and Freddie he would not do anything that would increase mortgage rates.)
“Bessent may want to keep the status quo and not do a hasty stock offering,” said Wesley Lin, a professor of public policy at U.C.L.A. and a former policy adviser in the Obama and Biden administrations. “It’s a ‘let’s not rock the boat’ approach.”
The rate on the traditional 30-year mortgage currently sits at 6.06 percent, down about a percentage point from where it was a year ago.
Mr. Pulte, who last fall frequently touted the stock offering on social media, has said little about the proposed deal over the past several weeks. But in a statement to The New York Times, Mr. Pulte said Mr. Trump made the right call “to not sell the companies during his first term” and that they were now worth at least $500 billion.
Mortgage rates are still relatively high compared to the decade-long low-rate environment that preceded the pandemic. But Mr. Trump and others in the administration have credited some of the recent decline to his directive that Fannie and Freddie begin buying mortgage bonds.
Buying mortgage bonds, in theory, can help reduce mortgage rates broadly because bond prices tend to move inversely to rates.
The bonds marketed by Fannie and Freddie are generally considered as safe a bet as investing in Treasuries because the mortgage firms guarantee those securities in the event of default. And the federal government, which chartered both companies decades ago as public-private entities, implicitly has agreed to stand behind those mortgage guarantees.
But that seemingly risk-free strategy went haywire during the financial crisis and ensuing wave of home foreclosures. Fannie and Freddie got themselves into trouble, in part, by borrowing too much money and investing in bonds backed by high-risk mortgages. To prevent both companies from collapsing, the federal government had to step in and bail them out.
In return for a taxpayer-funded $187 billion, the Treasury Department took equity stakes in the companies. The bailout ended up being a good deal for the government, as it helped stabilize the mortgage market, and the companies have since paid more than $300 billion in dividends to the Treasury.
Proponents of a stock offering for Fannie and Freddie believe a sale of some of the government’s remaining equity would both raise tens of billions more for the Treasury and boost the valuation of the government’s remaining shares. It would also generate tens of millions in fees for the Wall Street banks, some of whom have retained the law firm Kirkland & Ellis to advise them on establishing the terms for their work on the offering, said three people briefed on the matter. A stock offering also would lead to the companies having their shares re-listed on either the New York Stock Exchange or Nasdaq Stock Market, as opposed to the less prestigious over-the-counter market where the stocks have traded for the past 18 years.
The current corporate governance of Fannie and Freddie could pose a problem because Mr. Pulte, who is the firms’ regulator, appointed himself as chair of each of their boards, and named a number of his allies as board members. Both stock exchanges require a majority of board members to be independent and have no material ties to a company.
Mr. Dworkin said a stock offering that “simply establishes a base line value for the government’s stake is not harmful.” But, he added, it has to be “properly structured.”
Matthew Goldstein is a Times reporter who covers Wall Street and white-collar crime and housing issues.
The post Big Plan for Fannie and Freddie I.P.O. in Flux as Trump Pushes Affordability appeared first on New York Times.
