[Abridged Version] Fannie, Freddie, Trump & the Housing Crisis
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Fannie Mae (FNMA) and Freddie Mac (FMCC) have had some ups and downs since Trump’s election.
The GSEs’ investors’ Sisyphean saga still comes down to the Senior Preferred Stock (SPS) Liquidation Preference (LP), which grows largely in line with the Twins’ retained earnings.
There is a general misunderstanding that the Twins are currently sending profits back to the US government. This is not true. The Treasury is not getting significant cash flows from the Twins at this time. It is all in the SPS LP. The capital stays with the Twins.
The Twins have paid far more to the Treasury than was ever provided to them, but if the SPS LP is affirmed by Treasury, the Twins’ stocks will fall straight to the low single digits, or lower.
If the SPS LP is instead deemed to have been paid off, then all those retained earnings indeed belong to the Twins, and the shares rise 3-4x from current levels initially, and 6-7x in time. I assume exercise of the warrants and ensuing dilution.
The warrants expire in September 2028. I believe there will be action before the warrants expire, which will be just before the next presidential election.
This will likely bring Fannie and Freddie back to the fore, as Trump will be interacting with donors and looking to finish a few things in his lame duck year.
Executive Order 14393 Promoting Access to Mortgage Credit was signed March 13, 2026. This EO gave the FHFA director 120 days to submit a report on the efficiency of national housing finance markets, recommendations on regulations or legislation. That is due right around this July 11th weekend.
Some speculate that this EO report will recommend reducing the Enterprise Regulatory Capital Framework (ERCF), which determines the capital reserve required to be held by both Fannie and Freddie.