U.S. Plan to Sell Stakes in Fannie Mae and Freddie Mac Heightens Market and Political Risk

The administration and the FHFA director have signaled they may offer private investors a slice of Fannie Mae and Freddie Mac, institutions that currently underpin the bulk of U.S. mortgage finance and whose role touches most home purchases. The proposal is pitched as a way to monetize government control and return assets to the private sector, but officials have not settled basic design decisions: how much government support remains, what capital buffers would be required, and how legacy government claims would be handled. Those unresolved questions make it impossible for market participants to confidently value any equity offering, which increases the probability that investors will demand a steep discount or that the government will accept a sale that leaves taxpayers shortchanged. Legal and governance moves by the FHFA director — most notably installing himself atop the two firms’ boards — have intensified scrutiny and raised novel legal questions about agency authority while complicating investor and regulator confidence. The administration’s operational choices, including a recent directive to buy mortgage-backed securities totaling about $200 billion, have muddied the timeline and signal conflicting priorities between lowering rates and preparing an initial public offering. Economists warn that a hurried or partial privatization could push mortgage rates higher by transferring perceived risk from government balance sheets to private buyers, who would seek greater compensation. There is also a political dimension: long-held shares acquired after the 2008 collapse could either be written down or rewarded handsomely depending on how the exit is structured, creating the appearance or reality of favoritism toward wealthy investors. Valuation talk ranges widely — from officials suggesting single‑digit percentage sales that could fetch tens of billions to analysts who emphasize the firms’ aggregate worth in the hundreds of billions — but those round numbers obscure a far thornier set of tradeoffs. Absent clear answers on capital standards, regulatory reach and whether outstanding government claims will be forgiven, any market offering risks being both mispriced and destabilizing. For taxpayers, the core dilemma is simple: sell an appreciating asset now for cash, or retain control and ongoing earnings that effectively offset future crisis costs. If the administration proceeds without codifying the scope of the government backstop and investor protections, the result could be increased systemic risk, higher borrowing costs for ordinary homebuyers and concentrated private gains. A carefully sequenced, legally robust plan with transparent rules would be required to avoid those outcomes; at present, neither the mechanics nor the political guardrails are in place.