Fannie Mae, Freddie Mac rally on Ackman exit call

The midterm elections could be a turning point for the release of Fannie Mae and Freddie Mac from government control, according to billionaire investor Bill Ackman.

Investors may agree with him, if the rally in both stocks is any sign.

The Federal National Mortgage Association, known as Fannie Mae, and Federal Home Loan Mortgage Corporation, or Freddie Mac, have each jumped more than 60% from Oct. 14 to Monday’s close. The stocks were both up roughly 3% on Tuesday.

Ackman, the founder of Pershing Square Capital Management, has long pushed for the two entities to be released from federal conservatorship.

“The reason why it’s not being touched right now is, you know, midterms,” he said in an interview with CNBC’s “Squawk Box.”

Ackman, who owns both names through Pershing Square, believes Freddie and Fannie have the potential to increase “10-fold from current share prices,” he said in his quarterly letter to shareholders, issued on Monday.

Fannie and Freddie buy mortgages from banks and other lenders, and then package them into mortgage-backed securities, known as MBS. Their operations are critical to the housing market, providing liquidity to banks and creating a secondary market for MBS.

The entities were placed into conservatorship in September 2008, during the financial crisis. The stocks were delisted from the New York Stock Exchange in 2010 and have traded over the counter since then.

Ackman wants the conservatorship to end, arguing the entities would be worth multiples of their current valuation if they were freed from government control.

President Donald Trump has supported ending the conservatorship of Fannie and Freddie. But it remains politically and economically contentious.

The entities operate under strict capital threshold requirements and would need to be recapitalized, which could happen through issuing common equity. However, the Treasury Department would need to figure out an exit plan for its roughly $388 billion ownership stake in the entities through preferred securities and warrants.

Congress may also need to play a role, passing legislation to restructure the government’s role in mortgage financing and home-loan guarantees.

Nonetheless, Treasury Secretary Scott Bessent recently said it could happen before Trump’s term ends, telling 2Way’s “The Morning Meeting” podcast that the administration will tackle the ownership structure “next year, the year after.” He said affordability will be guiding the decision.

One point of controversy is whether ending the conservatorship of Fannie and Freddie would…