FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 10, 2024. REUTERS/Brendan McDermid/File Photo
NEW YORK: Almost half of investors who buy agency mortgage-backed securities (MBS) say in a survey by JPMorgan Chase & Co they expect Fannie Mae and Freddie Mac will be privatised sometime in the next four years, according to a note.
Another quarter of respondents expect the two companies, known as government-sponsored enterprises (GSEs), to be privatised sometime during the next presidential administration, or between 2029 and 2032, the survey found. And a slightly higher share – about 26% – don’t think the two GSEs will ever be privatised.
Founded in 1938 during the Great Depression, the Federal National Mortgage Association, commonly known as Fannie Mae, has been a publicly traded company since 1968.
Meanwhile, the Federal Home Loan Mortgage Corp, commonly known as Freddie Mac, was created in 1970 to expand the secondary market for mortgages in the United States.
The results offer a window into a community of market watchers with a direct stake in what would be a major overhaul to the nation’s mortgage-finance system.
The two GSEs have been in government conservatorship since their bailouts in 2008, and the debate over when and how to privatise them is notoriously complex.
President Donald Trump has called for the release of Fannie and Freddie from government control, though hasn’t brought it up recently and the issue was not part of his 2024 presidential campaign.
The mechanics of how, when and if privatisation will happen remain open questions.
The survey was conducted over Jan 16 to Jan 23 and included 126 respondents.
It was published in a note by strategists including Nicholas Maciunas, Alex Kraus, Sanjana Prasad and David Kaminsky.
JPMorgan also asked investors how various privatisation scenarios would impact the risk premiums on MBS that Fannie and Freddie financially guarantee, the pillar of their business models.
Exactly how much those risk premiums move is a key question, since the costs are ultimately passed through to homeowners in the form of higher or lower mortgage rates.
If the GSEs are privatised with only their current capital levels, respondents indicated risk premiums on MBS would widen by as much as 45 basis points or more.
If they were privatised with greater capital requirements, including scenarios where the GSEs are still allowed to draw on a line of capital from the Treasury Department, risk premiums would still widen but not by as much, respondents indicated.
And if privatisation came with an explicit government guarantee, risk premiums would even tighten slightly, the survey found.
Recently high-profile investors such as hedge fund chief Bill Ackman have brought attention to the debate by putting forward a plan to hold initial public offerings of Fannie Mae by 2026 and Freddie Mac by 2027.
Shares of GSEs have risen sharply since President Trump’s election, but the trade remains highly speculative. Fannie Mae common shares were down more than 15% as of last Friday compared with last Thursday’s close. — Bloomberg
