(Bloomberg) — Shares of long-moribund preferred stock issued by Fannie Mae and Freddie Mac surged on Wednesday amid speculation that Donald Trump will free the housing finance agencies from their crisis-era conservatorship.
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A $6 billion perpetual issue by Freddie Mac sold back in 2007 jumped as much as 70%, its highest in more than three years. Fannie Mae’s $7 billion series issued around the same time soared almost 68% from its pre-election close.
Trump’s return to the White House is reviving the prospect of preferred stockholders getting some money back after the US took control of the agencies during the 2008 financial crisis to keep the housing market from collapsing. Restoring them to the private sector could mean the end of curbs on payments to investors, which were imposed by the US after it bailed out the government-backed agencies. Holders have complained the US unfairly diverted profits to itself even after Fannie and Freddie had returned to health.
“The re-election of former President Donald Trump revives the effort to get Fannie Mae and Freddie Mac out of government conservatorship,” Bloomberg Intelligence analyst Ben Elliott wrote in a note. However, “a long process lies ahead and release remains at best a 2026-27 prospect,” he wrote.
Fannie Mae’s other preferred stock series rise between 45% and 66% on Wednesday, with Freddie Mac shares up between 20% and 62%, based on data compiled by Bloomberg.
The bailouts of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation were among the most controversial events of the global financial crisis. They stopped paying dividends on their preferred shares in September 2008, effectively turning those holdings into dead weight for investors because the shares pay no dividends, and they never have to be repaid since they are perpetual.
Freeing them from conservancy was an idea pushed during Trump’s first administration by Federal Housing Finance Agency Director Mark Calabria, their chief regulator at the time. The effort flagged amid concern about disrupting the housing market.
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Fannie and Freddie don’t make mortgages, but they underpin the bulk of the US housing market. They buy home loans from lenders, wrap them into securities and guarantee repayment of principal and interest to investors. The federal government took control of the companies during the 2008 crisis and ultimately bailed them out with around $187.5 billion as defaults mounted.
