Fannie Mae and Freddie Mac IPO: Analysis of Market Impact and Valuation Rationality

Based on the latest information and market data I have collected, below is an in-depth analysis of the IPO of Fannie Mae and Freddie Mac:

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Fannie Mae and Freddie Mac have been in conservatorship by the U.S. government since the 2008 financial crisis, for nearly 18 years to date. According to a statement by Bill Pulte, Director of the Federal Housing Finance Agency (FHFA), on January 8, 2026, President Trump will make a final decision on whether to move forward with the IPO of the two entities within the next one to two months [1][2]. This timeline makes 2026 a potential landmark year.

Notably, Trump recently ordered the two entities to purchase $200 billion in mortgage-backed securities (MBS). This measure, dubbed “Trump-style quantitative easing”, aims to lower mortgage interest rates and improve housing affordability [3][4]. However, this move has also sparked market concerns that the IPO process may be delayed.

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Fannie Mae and Freddie Mac play a core hub role in the U.S. housing finance system. As of Q3 2025, Fannie Mae’s guaranteed mortgage portfolio reached

, with quarterly net income of $3.9 billion; Freddie Mac’s guaranteed mortgage portfolio reached , with quarterly net income of $2.8 billion [5]. The combined mortgages held/guaranteed by the two entities account for the vast majority of the U.S. residential mortgage market.

Impact Dimension	Specific Performance
Mortgage Interest Rate Transmission	Rate increases by the two entities will be directly passed on to borrowers, driving up mortgage interest rates
MBS Market Supply and Demand	The scale of bond purchases may shrink after privatization, affecting secondary market liquidity
Affordability Risk	Profit orientation may weaken support for housing for low- and middle-income groups
Policy Mission Conflict	Potential contradiction between public interests and maximizing shareholder value

The FHFA has announced that the 2026 multifamily mortgage purchase cap for each of the two entities will be increased to

, totaling $176 billion, representing a year-over-year increase of over 20% compared to $146 billion in 2025 [6]. This adjustment reflects the expanding role of the two entities in the housing finance system, while also meaning that a larger balance sheet will support IPO valuation.

According to the final rule of the 2026-2028 Enterprise Housing Goals issued by the FHFA, the two entities still need to meet mandatory requirements such as the low-income home purchase target for single-parent households (28%) and the housing target for minority communities (16%) [7]. After privatization, how to maximize shareholder returns while meeting these social goals will become a major challenge for management.

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Fannie Mae (FNMA) and Freddie Mac (FMCC) currently trade on the over-the-counter (OTCQB) market:

Ticker Symbol	Latest Price	52-Week Range	Approximate Market Capitalization
FNMA	$11.01	$4.83-$15.99	$12.57 billion
FMCC	$10.08	$4.05-$14.99	Approximately $11 billion

Notably, the share prices of the two entities have experienced sharp fluctuations over the past year. FNMA’s annual return reached as high as

, with a three-year return of [8], mainly reflecting market speculation about IPO expectations and the potential lifting of the government’s “Net Worth Sweep” policy.

Renowned hedge fund manager Bill Ackman has named the two entities his “best investment idea for 2026”, with his three-step strategy including [9][10]:

1. Formal Repayment Confirmation
   : Officially confirm that the two entities have fully repaid the original $19 billion bailout (they have actually paid over $300 billion in profits to the U.S. Treasury)
2. Exercise Warrants
   : The U.S. Treasury should immediately exercise its warrants for 79.9% equity, which will generate over $300 billion in market value gains for the government
3. Relist on NYSE
   : Transfer the stocks from the OTC market to the New York Stock Exchange to provide sufficient liquidity for institutional investors

• Fannie Mae’s intrinsic value:
  Approximately $34 per share
  (based on 16x 2026 expected P/E ratio)
• Freddie Mac’s intrinsic value:
  Approximately $34 per share
  (based on 13x 2026 expected P/E ratio)
• Expected IPO pricing:
  $31 per share
  (approximately 10% discount to intrinsic value)
• Potential upside:
  300%-400%

Investor Michael Burry, famous for The Big Short, stated in December 2025 that the two entities could achieve a combined valuation of

through a large-scale IPO [11]. Burry currently holds a significant amount of common stock in the two entities and publicly supports their relisting plan.

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There are huge divergences in the market regarding the valuation of the two entities. Analysts and investors use completely different valuation logics:

• As core infrastructure of U.S. housing finance, the two entities have strategic monopoly value
• They have a massive balance sheet; the retained investment portfolio size of the two entities increased by over 25% in Q3 2025 [12]
• After exiting government conservatorship, they will be free from the constraints of the “Net Worth Sweep” policy and can retain all profits
• Allocation demand from institutional investors (similar to the demand of pension funds and insurance funds for stable income assets)

• Simply Wall St’s DCF model shows that FNMA’s reasonable valuation is only
  $2 per share
  , and the current price is significantly overvalued [13]
• The two entities are currently in a loss-making state and are not expected to achieve profitability in the next three years
• Capital adequacy requirements after exiting conservatorship (approximately 3% CET1 capital) mean that
  $340 billion-$360 billion
  in new capital injection is required [14]
• Policy risk: Political pressure over housing affordability may lead to rate regulation

Valuation Metric	Optimistic Scenario	Conservative Scenario	Current Market
P/E Ratio	13-16x	5-8x	Approximately 5,300x (loss-making)
P/S Ratio	6.2x+	Below 2x	2.12x
Implied Market Cap	$500 Billion-$1 Trillion	$50 Billion-$150 Billion	~$12 Billion (OTC)
Value per Share	$31-$34	$2-$5	$10-$11

According to the latest quarterly data, to meet the minimum capital requirements for exiting conservatorship (3% CET1), the two entities need to raise approximately in new capital [14]. This figure far exceeds any historical precedent and is the biggest obstacle to achieving the projected valuation.

The “Net Worth Sweep” agreement implemented in 2012 requires the two entities to remit all profits exceeding a small capital buffer to the U.S. Treasury. This policy caused the liquidation preference of the Treasury’s senior preferred stock to surge from the initial $1 billion to approximately (Fannie Mae: $220 billion + Freddie Mac: $140 billion) [14]. How to address this legacy issue before the IPO will directly determine the residual value of common stock.

• The Trump administration’s $200 billion MBS purchase order may further erode capital adequacy ratios
• Housing affordability has become a hot political issue in midterm elections
• The attitude of Congress and the direction of new capital structure legislation

Based on the above analysis, the $500 billion-$1 trillion valuation expectations have the following characteristics:

Valuation Range	Rationality Assessment	Main Basis
$500 Billion+	Highly Optimistic	Requires full removal of regulatory constraints, fulfillment of all capital requirements, and achievement of sustained high profitability
$500 Billion	Neutral to Optimistic	Reflects strategic value but requires resolution of capital structure issues
$200 Billion-$300 Billion	Conservative and Reasonable	More aligned with actual capital needs and market conditions
Below $100 Billion	Risk Discount	Reflects policy risks, capital shortfall, and execution uncertainty

A valuation of $500 billion or more is under current conditions, and a more realistic range may be between . Achieving the upper end of the valuation requires: (1) Full removal of the “Net Worth Sweep”; (2) Successful completion of large-scale capital injection; (3) Establishment of a stable regulatory framework.

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• Policy Risk
  : The government may continue to impose price controls or social mission requirements on the two entities
• Litigation Risk
  : Legal uncertainties related to shareholder lawsuits have not been fully resolved
• Execution Risk
  : Technical complexity of large-scale capital restructuring
• Market Conditions
  : Impact of changes in interest rate environment on mortgage demand

For investors considering investing in the two entities, the following should be noted:

1. OTC Market Liquidity Risk
   : Current trading volume in the OTC market is limited, making it difficult for institutional investors to build large positions
2. Information Asymmetry
   : Information disclosure is limited during government conservatorship
3. Timing Uncertainty
   : The IPO timeline may be delayed multiple times due to political factors
4. Extreme Volatility
   : Expectation-driven price fluctuations may lead to significant losses

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The IPO of Fannie Mae and Freddie Mac will be one of the most landmark events in the history of U.S. housing finance. From a market impact perspective, privatization may reshape the U.S. mortgage interest rate formation mechanism, change the supply and demand pattern of the MBS market, and have a far-reaching impact on housing affordability.

From a valuation perspective, the $500 billion-$1 trillion valuation expectations currently

and are more like speculative logic based on “once conservatorship is successfully exited, valuation will be completely re-rated”. A more reasonable valuation range under current conditions should be between , depending on the capital restructuring plan and changes in market conditions.

For investors, this is an asymmetric trading opportunity with high risk and high return, but they need to fully recognize the significant risks brought by policy uncertainty, capital shortfall, and execution complexity. It is recommended that investors pay close attention to the latest announcements from the U.S. Treasury regarding the capital restructuring plan, as well as the specific guidelines from the FHFA on the conditions for exiting conservatorship.

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[1] Seeking Alpha - “Decision on Fannie Mae, Freddie Mac IPOs seen in a month or two - report” (January 8, 2026) https://seekingalpha.com/news/4537850-decision-on-fannie-mae-freddie-mac-ipos-seen-in-a-month-or-two-report

[2] Investing.com - “Pulte Says Trump Will Decide on Fannie Mae, Freddie Mac IPO Within Two Months” (January 9, 2026) https://hk.investing.com/news/stock-market-news/article-93CH-1261538

[3] Caiwen News - “Trump: Has Instructed Representatives to Purchase $200 Billion in Mortgage-Backed Securities from Freddie Mac and Fannie Mae” (January 9, 2026) https://www.caiwennews.com/article/1412353.shtml

[4] Dongcai Wealth Account - “Trump-Style QE Implemented: $200 Billion Bond Purchase by the Two Entities Roils the Market” (January 9, 2026) https://caifuhao.eastmoney.com/news/20260109114541272392400

[5] ATTOM Data Solutions - “How a Fannie Mae / Freddie Mac IPO Can Change US Real Estate” https://www.attomdata.com/hnr/how-a-fannie-mae-freddie-mac-ipo-can-change-us-real-estate/

[6] Mortgage Underwriters News - “Why Privatizing Fannie Mae and Freddie Mac Could Reshape Housing Finance” (January 6, 2026) https://www.mortgage-underwriters.org/mortgage-underwriting-news/2026/1/6/why-privatizing-fannie-mae-and-freddie-mac-could-reshape-housing-finance-and-not-for-the-better

[7] Federal Register - “2026-2028 Enterprise Housing Goals” (December 23, 2025) https://www.federalregister.gov/documents/2025/12/23/2025-23746/2026-2028-enterprise-housing-goals

[8] Yahoo Finance - FNMA Stock Statistics (as of January 8, 2026) https://finance.yahoo.com/quote/FNMA/

[9] Triple S Investing - “The GFC Distressed Preferred Stock Analysis” https://triplesinvesting.substack.com/p/the-gfc-distressed-preferred-stock

[10] Benzinga - “Billionaire investor Bill Ackman reiterated his long-standing bet on Fannie Mae” (December 31, 2025) https://www.facebook.com/Benzinga/posts/billionaire-investor-bill-ackman-reiterated-his-long-standing-bet-on-fannie-mae-/1450161530442846/

[11] Facebook/Benzinga - Michael Burry’s Comments on the Valuation of the Two Entities https://www.facebook.com/Benzinga/posts/billionaire-investor-bill-ackman-reiterated-his-long-standing-bet-on-fannie-mae-/1450161530442846/

[12] Investing.com - “Fannie and Freddie Add Billions to the Bond Market” https://www.investing.com/analysis/fannie-and-freddie-add-billions-to-the-bond-market-200672036

[13] Yahoo Finance/Simply Wall St - “Fannie Mae (FNMA): Valuation Check as Conservatorship Exit Speculation Gains Traction” https://finance.yahoo.com/news/fannie-mae-fnma-valuation-check-110641712.html

[14] Triple S Investing - “The GFC Distressed Preferred Stock” - Treasury senior preferred stock liquidation preference analysis https://triplesinvesting.substack.com/p/the-gfc-distressed-preferred-stock