Bill Ackman Urges End To Fannie Mae, Freddie Mac Conservatorship: Says Will Enable Them To 'Operate More Successfully And Efficiently'

Billionaire hedge fund manager Bill Ackman is advocating for Fannie Mae FNMA and Freddie Mac FMCC to exit federal conservatorship, a status they've held since the 2008 financial crisis, arguing it would benefit the U.S. housing finance system.

What Happened: In a detailed post on X, Ackman, whose Pershing Square has been the largest common stockholder of both companies for 13 years, specifically calls for the cancellation of the $348.2 billion Senior Preferred Stock (SPS) liability on the companies' balance sheets, labeling it a "fictitious" figure that distorts economic reality.

A federal conservatorship refers to a legal process where a government agency takes control of a private entity, typically a financial institution, to stabilize it, protect its stakeholders, and ensure it can continue to operate during a crisis. Fannie Mae and Freddie Mac have been in conservatorship since 2008.

“We believe that F2’s exit from conservatorship will enable the GSEs (Government-Sponsored Enterprises) to operate more successfully and efficiently, with more stable management and at lower cost, greatly benefiting our housing finance system,” he said.

Meanwhile, an SPS liability mandates a company to prioritize payments to the senior preferred stockholder, the U.S. Treasury, in this case, over other stakeholders.

Ackman claims the government has been overpaid, stating, "F2 repaid $301 billion of the original $191 billion invested by the government," generating an 11.6% return for taxpayers.

According to him, the SPS balance, inflated by the Obama-era 2012 Net Worth Sweep, which siphoned all profits to the Treasury, preventing the companies from achieving their full market value.

"The government has been paid more than it was contractually owed under the extremely onerous terms of the SPS," Ackman asserts, emphasizing that canceling this liability isn't a gift to shareholders but a necessary correction.

Why It Matters: The move would also benefit taxpayers, highlights Ackman, as the government holds a 79.9% stake in Fannie and Freddie via warrants, ensuring significant returns on any value increase post-conservatorship.

Ackman warns, "No private sector investor will invest in F2 if the government can unilaterally revise the terms of F2's liabilities at will," underscoring the need for trust in the market.

Thus, he believes that releasing Fannie Mae and Freddie Mac from conservatorship and canceling their SPS liability will enable them to operate more efficiently, reduce costs, and stabilize the housing finance system, ultimately benefiting the housing market.

Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose on Tuesday. The SPY was up 0.57% at $596.09, while the QQQ advanced 0.78% to $527.30, according to Benzinga Pro data.

The futures of the S&P 500, Dow Jones and the Nasdaq 100 indices were flat on Wednesday.

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