Prominent investor Bill Ackman recently brought Fannie Mae and Freddie Mac back into the spotlight, suggesting their stocks could surge tenfold from what he calls "absurdly cheap" levels.
His timing is noteworthy. With mortgage rates climbing back above 6%, the White House is under pressure to address housing affordability. This political urgency makes Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) at the heart of the U.S. housing market, highly relevant policy tools once again. The government could use them to help lower borrowing costs, creating a favorable backdrop for potential structural changes.
Several developments have paved the way for this moment. First, the Federal Housing Finance Agency (FHFA) has already established clear housing goals for the GSEs for 2026-2028. This defines their public mission, creating a stable framework that any plan to end their government control, or conservatorship, must operate within. Second, the FHFA has demonstrated a willingness to use the GSEs' balance sheets more aggressively, for instance by expanding mortgage purchasing programs. This signals that further administrative actions are on the table. Third, the stocks have fallen significantly from their 52-week highs, making a bold turnaround narrative like Ackman's more appealing to investors.
However, the path to a 10x return is filled with significant obstacles. The U.S. Treasury holds a massive amount of senior preferred stock in both companies, a claim that grows larger each quarter as the GSEs retain earnings. Furthermore, the Treasury holds warrants giving it the right to buy nearly 80% of their common stock. A crucial 2025 agreement clarified that any exit from conservatorship requires the Treasury's explicit consent, making it a fundamentally political decision.
Ultimately, Ackman's claim is a high-stakes bet on political will and timing. While recent events suggest the environment is ripe for smaller steps, like a partial government sell-down of shares, a full 10x revaluation would require a swift and comprehensive solution to these complex capital structure issues. It all hinges on a green light from the White House and Treasury, making this a classic high-risk, catalyst-driven investment thesis.
- GSE (Government-Sponsored Enterprise): A quasi-governmental entity created by Congress to enhance the flow of credit to specific sectors of the economy. Fannie Mae and Freddie Mac are GSEs that support the U.S. housing market.
- Conservatorship: A legal status where a government agency (the FHFA in this case) takes control of a company to stabilize it during a period of financial distress. Fannie and Freddie have been in conservatorship since the 2008 financial crisis.
- Warrants: A type of security that gives the holder the right, but not the obligation, to buy a company's stock at a specific price before a certain date. The U.S. Treasury holds warrants for a large stake in Fannie and Freddie.