Shares of Fannie, Freddie soar as Wall Street bets on GSE privatization


There’s been lots of noise lately that the end of Fannie Mae and Freddie Mac’s conservatorship is looming, and the speculation is causing the GSEs’ stocks to soar.

According to an article in The Wall Street Journal, common shares of Fannie and Freddie are up 170% this year, while preferred shares, which are the most commonly traded class, are up 37%.

Less than two weeks ago, Federal Housing Finance Agency Acting Director Joseph Otting reportedly told employees the agency was weeks away from announcing a plan to take the GSEs out of conservatorship.

It’s hopeful news for the GSEs’ major investors, which include Discovery Capital Management, Blackstone Group and Pershing Square Capital Management, according to the WSJ.

Hedge funds have been betting on GSE privatization for years, insisting that the government should sell its stake in the market and make way for private shareholders who can shoulder the liability. They’ve made their case repeatedly on Capitol Hill, but the struggle has gone on for nearly a decade without making headway.

While the WSJ said that an end to the conservatorship is merely speculation – and that such a change could impact the price and availability of mortgages for millions of Americans – it would be a final step in the resolution of the housing crisis that rocked the nation.

“Should a plan go forward, it would conclude the biggest unresolved legacy from the financial crisis – what to do with the failed mortgage-finance companies – and partly determine whether hedge funds wind up profiting from their wagers,” the article stated.

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