- Freddie Mac and Fannie Mae shares surged post-Trump election win, up 74% and 70%, respectively.
- Trump's second presidency could end government control of the agencies, reshaping the mortgage industry.
- Some of Trump's hedge fund supporters stand to benefit from privatization.
While Tesla and bitcoin soared in the wake of Donald Trump's election victory, shares of two firms connected to a key corner of the US economy have also surged on the potential for a big shake-up.
The preferred shares of Freddie Mac and Fannie Mae, the mortgage finance giants that entered government conservatorship during the 2008 financial crisis, have soared in the past week. Shares of Freddie Mac and Fannie Mae are up 74% and 70%, respectively, since Trump won the election.
Behind the massive gains are hopes that a second Trump presidency could release both companies from their government conservatorship, potentially reshaping the US mortgage industry.
"The re-election of former President Donald Trump revives the effort to get Fannie Mae and Freddie Mac out of government conservatorship," Bloomberg Intelligence analyst Ben Elliott wrote in a recent note.
In 2008, the US government bailed out both companies and took them over to prevent the housing market from crashing and ensure that mortgages were still available to prospective homebuyers.
While the companies don't originate mortgages, they buy home loans from lenders and securitize them, offering liquidity to a market that deals in a relatively illiquid product.
Since then, excess profits generated by both companies have been paid to the US Treasury rather than their investors, which is why the preferred shares of both Freddie Mac and Fannie Mae have traded below $5 for much of the past 15 years.
However, a recent report from The Wall Street Journal suggests that members of Trump's inner circle, such as Larry Kudlow and John McEntee, are discussing plans to re-privatize the two companies.
Those against the plan worry that the privatization of Freddie Mac and Fannie Mae would result in higher mortgage rates and a resurgence in risky behavior that led to the 2008 crisis, while supporters say the companies are well-capitalized and in a much stronger financial position than they were during the 2008 Financial Crisis.
Hedge fund boss and potential pick for Treasury Secretary under Trump, John Paulson, is among some of the big holders of Fannie and Freddie shares who stand to benefit from their privatization.
While a second Trump presidency may try to move ahead with plans to privatize the mortgage finance giants, efforts to do so during his first administration fizzled.
Bloomberg Intelligence analysts said privatizing the companies would be a long process that "at best" would not occur until 2026 or 2027.