For those of us that have followed the Fannie Mae and Freddie Mac trades since they went into conservatorship, my theory is that it's worth waiting until the end of 2026. Here's my thinking:
* Political
* Trump likely wants to privatize Fannie and Freddie. He looked into it his first time but the major things holding it back were capital reserves and political will.
* With a Trump 2nd term, reducing the size of government is one of his biggest goals. In general, privatization is one of the most common ways of doing this. Given that Fannie and Freddie were taken over in 2008, this makes them a prime candidate to be re-privatized.
* Republicans have the power in Congress at the moment.
* Financial
* At the time, based on the plan and rules they would need about $275-300B in reserves. They currently have about $165B in reserves. In recent years, they generate about $25B in net income per year. While that's about a $100B gap, they can also raise capital through private and public means (private investors, issuing stock).
Why 2026? Pure speculation from here on:
* Financial
* In 2 years, they will be in a better capitalized position. They will likely have made about $50B more in income, thus having a total of about $215B in reserves and about a $50B gap in capitalization needed. Given their economics and situation, it could be a tempting investment for investors (particularly hedge funds).
* Political
* While this is in line, philosophically, with what Trump wants to do, it won't be a money saver and thus not likely a priority under say DOGE. This would be more symbolic and thus, in my thinking, is a lower priority.
* I'm guessing 2024-2026 will be somewhat politically turbulent. This will be the time that Trump takes his biggest swings in terms of cuts to the government since the Republicans control Congress. They will expend political capital to make controversial changes. Therefore, they will focus on their highest priority changes.
* We have to see what happens to Congress in the 2026 elections. In recent history, Congress has changed power from one political party to another (I believe in 2008 Dems won power under Obama, but then Republicans gained power in 2010). If the Dems win back the balance of power in 2 years, there may not be the political will to privatize. The Dems will sell a fear message around housing affordability, increased costs to borrowers so that they can retain power and control over an important political tool.
Conclusion
If I were to place odds, it feels feels like a latter-half Trump term initiative. And the best odds are only if Republicans retain power in both houses of Congress in order to pass a bill to make this happen. They're in healthy positions but a couple more years of making money will put them in a financial sweet spot for it to be supported by politicians.
Even then, it's quite complex and likely is years in the making. But the stock will move if the possibility of privatization in the near term becomes visible.
If Democrats take power back in Congress in 2026, this isn't a place I'd bent money. Same goes if they win the presidency in 2028. There's also a possibility that the government wants to make major changes to how these types of government-sponsored enterprises are structured, making privatization a much more complicated matter.