Written by: Internal Analysis & Opinion Writers
Momentum is building in Washington to privatize Fannie Mae and Freddie Mac, the two mortgage giants that support the bulk of America’s housing finance system. For a select group of hedge funds that scooped up their shares years ago, the political shift could deliver staggering returns. But housing advocates warn the move may come at the expense of affordability and long-term market stability.
Fannie Mae and Freddie Mac have been under government conservatorship since the 2008 financial crisis. Now, with strong capital buffers and consistent profits, pressure is mounting to return them to private ownership. The firms back nearly 70% of new U.S. mortgages, making their future central to the housing market’s direction.
A core group of hedge fund investors—including names like Bill Ackman and John Paulson—bought up shares in the companies during the post-crisis downturn, betting they would one day be released from federal control. With share prices up over 400% in the last year alone, the prospect of privatization is bringing those bets closer to a massive payoff.
President Donald Trump has added fuel to the fire by pledging to take the firms private, while also assuring the market that federal backing would continue in some form. That promise has boosted investor confidence, as the presence of a government guarantee has long underpinned the GSEs' ability to keep mortgage rates affordable and funding stable.
Treasury Secretary Scott Bessent has signaled that the administration supports a structured, phased transition. He emphasized that moving too quickly could jolt mortgage rates higher or discourage new housing construction, both of which are top-of-mind concerns in an already strained housing market.
Some investors have floated valuations in the trillions once the GSEs are privatized and fully capitalized. Ackman, for example, has publicly predicted a share price around \$31—more than tenfold the price at which he purchased his stake. He has also lobbied for the Treasury to cancel its senior preferred stock position, arguing it dilutes value for common shareholders and would be an obstacle to full privatization.
But critics see danger in putting profit before policy. Housing advocates worry that privatization could push mortgage rates up by as much as one percentage point if the government’s implicit guarantee is weakened. This could lock more families out of homeownership and widen the affordability gap.
Senator Chuck Schumer and other Democrats have expressed concern that a privatized GSE structure, driven by shareholder returns, would result in tighter underwriting standards and reduced availability of low-cost loans—particularly for first-time and lower-income buyers.
Even some conservative analysts agree that the firms’ current market value is tightly linked to the perception of federal support. Removing or watering down that support, they argue, would make mortgages more expensive and reduce access to long-term, fixed-rate financing.
Proponents of privatization counter that Fannie and Freddie have already paid back the government’s bailout funds many times over. With capital reserves now exceeding \$160 billion, they say the firms are ready to operate independently and return profits to shareholders rather than to the U.S. Treasury.
Behind the scenes, hedge funds have spent years preparing for this moment. When the government seized control in 2008, common shares were nearly wiped out. But several funds held firm or doubled down, confident that political winds would eventually shift in favor of releasing the companies from conservatorship.
Ackman’s Pershing Square now owns a sizable chunk of the firms’ outstanding shares. Other major holders include Paulson & Co. and Fairholme Capital, all of whom have aggressively advocated for privatization and shareholder rights through legal and political channels.
Still, several hurdles remain. Any plan to privatize the GSEs will need to navigate a complex mix of regulatory approvals, congressional pushback, and market stability concerns. Legal questions surrounding the Treasury’s senior preferred shares—along with the need to maintain support for underserved borrowers—will also factor heavily into how any deal is structured.
Many banks and industry groups are cautiously supportive of reform but warn against weakening the 30-year fixed mortgage, which depends on reliable, low-cost secondary market funding. They stress that any restructuring must preserve liquidity and prevent market fragmentation.
The challenge is striking a balance between investor gains and public responsibility. While hedge funds may be poised for historic profits, the broader implications for housing affordability, credit access, and financial market stability are still being debated.
If the effort succeeds, it would mark one of the most dramatic turnarounds in Wall Street’s recent history—transforming a near-total collapse into a multi-billion-dollar windfall. But if mismanaged, it could destabilize a housing finance system that touches nearly every American household.
