Fannie, Freddie Stock Woes Deepen as IPO Questions Mount

President Donald Trump's directive for Fannie Mae (FNMA) and Freddie Mac (FMCC) to purchase $200 billion in mortgage bonds has intensified investor uncertainty regarding their long-term privatization prospects. The move aims to lower mortgage rates and make housing more affordable but has raised concerns that an IPO for the two GSEs is being delayed.

Since the announcement on January 7, Fannie Mae shares have dropped 10%, while Freddie Mac shares have fallen 14% as investors process the implications of the directive. Trump has not ruled out a future IPO but emphasized the utility of the GSEs in his housing affordability strategy.

Evercore ISI analyst Matthew Aks noted that the directive effectively signals the GSEs are unlikely to exit conservatorship soon. "It should now be fully clear that the GSEs are not going to have a bona fide exit from conservatorship any time soon," Aks wrote on January 11.

Why Did This Happen?

The directive aligns with broader efforts to improve housing affordability amid political challenges for Trump. Trump praised his earlier decision not to IPO the GSEs in his first term, noting that the companies are now worth significantly more than before.

Federal Housing Finance Agency (FHFA) Director Bill Pulte suggested earlier in January that the administration could decide on an IPO for Fannie and Freddie within the next month or two. However, Trump's latest policy shift has clouded expectations.

How Did Markets React?

Fannie Mae and Freddie Mac stocks continued to fall on January 16, with Fannie down 6.0% and Freddie down 4.9% by midday. Both stocks have lost more than 40% from their September peaks but remain up over 60% from a year ago.

Market participants had previously priced in a potential IPO of 5% to 15% of each company's shares, potentially raising around $30 billion and valuing the GSEs at $500 billion or more. The recent directive has led to reassessment of those expectations.

What Are Analysts Watching Next?

Analysts remain divided. While the IPO narrative is not dead, its timing is increasingly uncertain. TD Cowen analyst Jaret Seiberg noted that Trump's reluctance to privatize the GSEs now suggests a delay.

Wedbush analyst Henry Coffey, however, argued that Trump is likely pursuing both affordability and eventual monetization. "We do not think he has given up on the FNMA/FMCC IPO; he wants both affordability and a monetization of the Treasury's warrants," he wrote on January 9.

Despite the current uncertainty, alternative paths for equity holders remain open. The president could forgive the government's senior preferred stake in the GSEs, which would lead to a significant appreciation in book value and potentially allow re-listing on the New York Stock Exchange. Market observers are also watching for additional policy moves from Trump, particularly during his upcoming speech at Davos, where he is expected to outline more housing affordability measures.

The GSEs have been under government conservatorship since the 2008 financial crisis. Their continued role in supporting the housing market has become a key tool for presidential policy but has also stymied privatization efforts.

Investors remain cautious as the administration's priorities shape the future of Fannie and Freddie. The balance between affordability goals and market monetization remains a key focus for analysts and equity holders alike.