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By Mikayla Sciortino/ Multi-Housing News
This three-part proposal could be done while the companies are still under conservatorship, says the GSEs’ biggest shareholder.
Bill Ackman, CEO of Pershing Square Capital Management, has proposed a three-part plan regarding Fannie Mae and Freddie Mac. Image by Michelle Matteson/ photos courtesy of Fannie Mae and Freddie Mac
Bill Ackman, CEO of Pershing Square Capital Management, has unveiled a proposal for changing the ownership structure of Fannie Mae and Freddie Mac, which have been under conservatorship since 2008.
In a presentation held on the social media platform X, the hedge fund manager stated that the sale of shares of both entities while they still operate under the conservatorship and remain undercapitalized by nearly $150 billion is not feasible for the foreseeable future.
Instead, Ackman proposed a three-phase plan that includes a repayment of both corporations’ senior preferred stock, the Treasury Department’s purchase of 79.9 percent of the company’s common stock and the near-immediate relisting of both on the New York Stock Exchange.
Drawbacks of an immediate exit from the conservatorship could include a failed initial public offering, the need to make significant changes to Fannie and Freddie’s relationship with the Federal government and management structures, as well as their ability to earn returns on existing loans without raising guarantee fees. An exit that does not account for these needs could significantly disrupt the mortgage market, according to Ackman, whose company remains largest common shareholder in Fannie Mae and Freddie Mac.
The plan, in practice
Ackman stated that Fannie and Freddie have already paid back their SPS with 10 percent interest, and that an additional $25 billion in capital came out of the company through the net worth sweep in 2012, when all of their proceeds were ordered to be paid to the Treasury Department.
Consequently, if the Treasury Department buys 79.9 percent of permanent common stock in both GSEs, a potential result could be taxpayer ownership of more than $300 billion in assets. Ackman also stated that each company meets the requirements to enter the stock exchange already, pending approval by the FHFA.
“The beauty of this very simple approach is that these entities will be listed on the New York Stock Exchange,” Ackman said during the presentation. “In a recent conversation (I had) with the NYSE, they said that they believe it could be a matter of a few weeks for them to meet and go through the process of being listed.”
In the meantime, there would be minimal changes to the day-to-day operations at the GSEs themselves, and no dividends will be given to junior or common stockholders until both organizations are fully recapitalized. The proposal would give the Trump administration three years to more carefully take the entities out of their conservatorship, according to Ackman.
Discussions of privatizing the GSEs have been underway since early this year. While this plan does not immediately privatize either corporation, it may create a more stable-path for an exit from conservatorship, according to experts.