Functions of Fannie Mae and Freddie Mac
Fannie Mae (ticker: FNMA) and Freddie Mac (ticker: FMCC) do not originate mortgages. Instead, they purchase debt from lenders and package it into bonds. These securities are backed by collateral, providing bondholders with protection against default. This process provides liquidity in the mortgage market, keeping the housing market buoyant and lending rates low.
Federal Government Takeover
Following the 2008 financial crisis, the financial tsunami devastated the US housing market, prompting the Federal Reserve (FHFA) to announce its takeover of Fannie Mae and Freddie Mac on September 6 of that year. The US Treasury injected $190 billion into the two companies. In return, the government received senior preferred stock and a 10% annual dividend. Since then, the two companies have operated under US government control.
For a detailed explanation of the financial crisis that broke out in 2008, please see my post of ““Too Big To Fall”-best to know 2008 financial crisis“
Fannie Mae and Freddie Mac are private mortgage lenders, but for years they were overseen by the Federal Housing Finance Agency (FHFA). All of their surpluses since 2012 (accumulating over $300 billion as of the end of June this year) have been remitted to the Treasury. The Treasury holds 80% of Fannie Mae and Freddie Mac’s common and preferred stock, but this arrangement leaves each with only approximately $3 billion in capital, leaving taxpayers exposed to future bailout risks.
Delisted in 2010
Fannie Mae was delisted from the New York Stock Exchange on June 16, 2010. Following the 2008 financial crisis, Fannie Mae’s stock price remained below the $1 floor for more than 30 consecutive days. The US government, through its oversight of the Federal Housing Finance Agency (FHFA), directed the NYSE to suspend trading. Following the delisting, Fannie Mae’s common stock began trading on the over-the-counter (OTC) market under the ticker FNMA.
On August 4, 2010, Freddie Mac was delisted from the New York Stock Exchange. This delisting followed a similar path to Fannie Mae’s—after the 2008 housing crisis, its stock price remained below the NYSE’s $1 floor for more than 30 consecutive trading days. Following its delisting from the NYSE, Freddie Mac’s stock began trading on the over-the-counter (OTC) market under the ticker symbol FMCC.
Was considered out from government control
In September 2019, the US Treasury Department announced plans to separate Fannie Mae and Freddie Mac from government control, which had been taken over by the federal government following the 2008 financial crisis. Since Fannie Mae and Freddie Mac guarantee over 50% of all mortgages in the United States, this move would usher in reforms to housing financing.
The U.S. Treasury Department has proposed dozens of reforms aimed at strengthening Fannie Mae and Freddie Mac’s ability to withstand the housing crisis, reducing their market share, and fostering new competition in the $5 trillion mortgage market to reduce systemic risk. The most significant change in the new proposal is that it would allow the two agencies to maintain larger surpluses to absorb future losses. Treasury Secretary Mnuchin’s idea is to recapitalize the two agencies, with the public initially bearing the losses while the agencies continue to make regular payments to the Treasury. This approach would not require congressional approval and would be more likely to succeed.
Despite political discussions and proposals to “unwind” Fannie Mae and Freddie Mac, no legislation or formal action has been enacted.
US Government Policy
Policy Changes
The US government has decided to take Fannie Mae (FNMA) and Freddie Mac (FMCC), the two mortgage giants cause the 2008 financial crisis, public later this year.
Officials revealed that the US government plans to sell 5% to 15% of its holdings, expecting to raise $30 billion and valuing the two companies at over $500 billion.
The over-the-counter shares of the two companies surged 22% on the 8th following the news. Reports indicate that in recent weeks, the CEOs of JPMorgan Chase, Citigroup, and Bank of America have discussed possible solutions for Fannie Mae and Freddie Mac with Trump. Trump has said that if Fannie Mae and Freddie Mac go public, the government’s guarantee will remain, but White House officials have not elaborated on how this would be structured. Fannie Mae and Freddie Mac were placed under government-funded trusteeship after the 2008 financial crisis.
Latest U.S. Government Statements
“We are exploring all options on how to proceed,” U.S. Treasury Secretary Scott Bessant said on Fox Business on August 14.
“The president is very committed to this,” Bessant said in response to a question about the administration’s consideration of taking Fannie Mae and Freddie Mac public.
He added that the White House wants to maximize value for taxpayers while keeping the spread between mortgage rates and Treasury bond rates stable or even lower.
Relisting
How big would the IPO be?
This potentially multi-billion dollar deal is poised to be one of the largest IPOs in history. However, analysts question whether such a large and complex stock offering can be completed by the end of 2025. Meeting that timeline requires the Trump administration to “very quickly move through some very difficult and substantive policy discussions.” Can the two mortgage giants commit to a certain level of shareholder rights and relatively stable profit levels?
Big Challenges
First, the Treasury currently holds over $340 billion worth of preferred stock in Fannie Mae and Freddie Mac. The Treasury would have to “dissolve or convert their shares into common stock,” both of which could lead to potential lawsuits from taxpayers or existing shareholders, making the IPO “likely to be a very messy start.”
Second, the two mortgage giants face a $181 billion shortfall in “loss-absorbing capital.” Replenishing this capital would not only take nearly a decade but would also “substantially reduce each company’s return on equity to the point where no one would buy the shares.”
Potentially Significant Risks
If the government overly caters to investors, intent on making Fannie Mae and Freddie Mac more attractive to them, “various risks exist for the housing system and homeownership generally.” The Trump administration has yet to clarify how it will ensure widespread public confidence that the government will continue to support these companies in a crisis. This government guarantee is crucial to keeping mortgage rates low.
If the status between Fannie Mae, Freddie Mac, and the government changes without addressing certain issues, “many Americans could face unknowingly higher mortgage rates.” Successfully advancing this case will require a “massive communications effort” with all stakeholders in the housing market, including real estate agents, homebuilders, lenders, and banks.
Capital Market Performance
Fannie Mae’s stock price has risen 770% since 2025, and Freddie Mac’s has risen 632% since 2025. These gains are truly astonishing!
Sub-brokerage brokers cannot trade them
Because the two mortgage giants Fannie Mae and Freddie Mac were delisted from the New York Stock Exchange after the 2008 financial crisis, they are currently only traded over-the-counter (OTC) trading.
A special reminder for Taiwanese investors using re-entrusted brokers to invest in US stocks: the vast majority of Taiwanese re-entrusted brokers prohibit investors from buying stocks that are not listed on the New York Stock Exchange or Nasdaq.
This is one of the most significant restrictions on re-entrusted brokers, but you can avoid this restriction by using your US brokerage account instead. For more information on re-entrusted brokers, see my post of “How to invest in US stocks? sub-brokerage, and fintech“
In short, Taiwanese re-entrusted brokers are currently prohibited from buying the stocks of these two companies unless they are re-listed on the New York Stock Exchange or Nasdaq.
Related articles
- “Fannie Mae and Freddie Mac high possibility to relist soon“
- “How to invest in US stocks? sub-brokerage, and fintech“
- ““Too Big To Fall”-best to know 2008 financial crisis“
- “Inside Job”
- “The Big Short“
- “How is banking investment different from other industries? “
- “How did Silicon Valley Bank collapse? What is the impact?“
- “How does JPMorgan Chase make money?“
- “Bank of America, too big to fall“
- “Wells Fargo, a major holding once praised by Buffett and Munger“
- “Citigroup, a downward companies“
- “What caused Citi to abandon its retail banking business in 13 countries“
Disclaimer
- The content of this site is the author’s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.
- I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers’ direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.
