Hedge funds could make billions from a Fannie Mae and Freddie Mac spin-off

[BumRushDaShow]

Source: CNN Business

Published 4:00 AM EDT, Mon June 9, 2025


CNN — A long-held stake by a handful of hedge funds may finally yield returns under the Trump administration, but it risks sending shockwaves through America’s $12 trillion mortgage market. Last month, President Donald Trump said he had plans to take mortgage financing giants Fannie Mae and Freddie Mac public. Such a move would end 17 years of federal government conservatorship over the two companies, which have played a central role in America’s housing finance system by providing liquidity to the mortgage market.

Some experts warn that severing Fannie and Freddie from government control could raise mortgage rates and restrict access to popular mortgage products — like the 30-year fixed loan — at a time when housing affordability remains out of reach for many Americans. Last week, Senate Democrats sent a letter to William Pulte, who leads the Federal Housing Finance Agency, asking him to pause efforts to take the two public, citing the risk that it could increase costs for homebuyers.

A group of investors has been anxiously awaiting the day Fannie and Freddie return to the public markets. None has been more vocal than billionaire investor Bill Ackman, whose hedge fund, Pershing Square Capital, is one of the largest holders of common shares in Fannie and Freddie. “We have been leading the charge on behalf of all (Fannie and Freddie) shareholders to help them to exit from conservatorship,” Ackman posted on social media on Tuesday.

A representative for Ackman pointed to his commentary on social media when asked about Pershing Square’s current stake. Ackman isn’t the only hedge fund investor who bet on Fannie and Freddie after the government seized them during the 2008 financial crisis, when both were on the brink of collapse.

Read more: https://www.cnn.com/2025/06/09/economy/fannie-mae-and-freddie-mac-private

[mwmisses4289]

1. Not recalling that clearly, but wasn't the reason the government took them over

because of the hash public investors/hedge fund types had made of fannie/freddie? Now that they are solvent and appear to be rolling in dough, the current crop of hedge funders cant wait to raid the piggy bank and leave nothing behind.

[BumRushDaShow]

2. They fell into the "easy money" trap trying to regain market share from the loan sharks

7 Things You Need to Know About Fannie Mae and Freddie Mac


Sep 6, 2012


Exactly four years ago, during the early days of the financial crisis, the federal government took control of mortgage financiers Fannie Mae and Freddie Mac through a legal process called conservatorship. Since then, the two companies have required roughly $150 billion in taxpayer support to stay solvent, while the government has kept the housing market afloat by backing more than 95 percent of all home loans made in the United States. Fannie and Freddie remain two of the largest financial institutions in the world, responsible for a combined $5 trillion in mortgage assets.

(snip)

2. What role did Fannie and Freddie play in inflating the housing bubble of the mid- to late-2000s?

(snip)

During the bubble, loan originators backed by Wall Street capital began operating beyond the Fannie and Freddie system that had been working for decades by peddling large quantities of high-risk subprime mortgages with terms and features that drastically increased the chance of default. Many of those loans were predatory products such as hybrid adjustable-rate mortgages with balloon payments that required serial refinancing, or negative amortization, mortgages that increased the unpaid balance over time.
Wall Street firms such as Lehman Brothers and Bear Stearns packaged these high-risk loans into securities, got the credit-rating agencies to bless them, and then passed them along to investors, who were often unaware or misinformed of the underlying risks. It was the poor performance of the loans in these “private-label” securities—those not owned or guaranteed by Fannie and Freddie—that led to the financial meltdown, according to the bipartisan Financial Crisis Inquiry Commission, among other independent researchers.

In fact, Fannie and Freddie lost market share as the bubble grew: The companies backed roughly half of all home-loan originations in 2002 but just 30 percent in 2005 and 2006. In an ill-fated effort to win back market share, Fannie and Freddie made a few tragic mistakes. Starting in 2006 and 2007—just as the housing bubble was reaching its peak—Fannie and Freddie increased their leverage and began investing in certain subprime securities that credit agencies incorrectly deemed low-risk. Fannie and Freddie also lowered the underwriting standards in their securitization business, purchasing and securitizing so-called Alt-A loans. While Alt-A loans typically went to borrowers with good credit and relatively high income, they required little or no income documentation, opening the door to fraud (which was often perpetrated by the mortgage broker rather than the homebuyer). These decisions eventually contributed to the companies’ massive losses, but all this happened far too late to be a primary cause of the housing crisis.

3. Why did Fannie and Freddie require a taxpayer bailout?

(snip)

In 2008 Fannie and Freddie lost a combined $47 billion in their single-family mortgage businesses, forcing the companies to dig deep into their capital reserves. Nearly half of those losses came from Alt-A loans, despite those loans accounting for just 11 percent of the companies’ total business. But those losses were only the beginning: Between January 2008 and March 2012, Fannie and Freddie would lose a combined $265 billion, more than 60 percent of which was attributable to risky products purchased in 2006 and 2007. By late summer in 2008—about a year after the start of the housing crisis—Wall Street firms had all but abandoned the U.S. mortgage market, while pension funds and other major investors throughout the world continued to hold large amounts of Fannie and Freddie securities. If Fannie and Freddie were allowed to fail, experts agreed that the housing market would collapse even further, paralyzing the entire financial system. The Bush administration in September 2008 responded by placing Fannie Mae and Freddie Mac into government conservatorship, where they remain today.


(snip)

[mwmisses4289]

3. Thank you for that.

[BumRushDaShow]

4. Most welcome!

I remember when all of that was happening along with the "credit default swaps" and junk bonds and whatnot. What a mess!!!

[progree]

6. The two things that stood out for me from the housing bubble

(1) The ones packaging mortgages into the collaterized mortgage obligations (CMOs) and similarly named products bragged that they included a geographically diverse collection of mortgages. They and the financial media reminded us that while certain geographic markets have had liquidity problems in the past, that has never happened on a nationwide scale since the 1930's great depression, and that was way back in ancient hsitory before a whole set of rules and regulations were instituted to make it virtual impossible to happen again. So they were perfectly safe, and hurray to modern financial engineering to safely bring affordable mortgages to everyday hardworking American families rah rah.

Lesson: because something hasn't happened before (or hasn't since the Great Depression), doesn't mean it can't or won't happen again, especially if one keeps pushing the limits further and further.

(2) The issuers of these CMOs paid the rating agencies, like Moody's, to rate their products. That obviously incentivized Moody's etc. to rate them well, otherwise the issuers could take their business to others, like Fitch or S&P, to rate them.

Lesson: no lesson learned AFAIK, this is still the practice. To me this is the most gob-smacked conflict of interest and the greatest weakness in the whole financial crisis and going forward.

[BumRushDaShow]

7. The "pieces of mortgages" slapped together as a "unit"

(am guessing in order to "spread the risk" with a geographic diversity) was just mind-boggling to me. Like creating something out of thin air.

But agree that the credit raters really screwed the pooch regarding assessing (or misassessing) these new instruments.

All of this was why the creation of the CFPB that the GOP is in the process of attempting to dismantle.

[PSPS]

5. With the usual cut being laundered as "campaign contributions" to republicans.

Standard off-the-shelf republican money-laundering scheme.