What is Team Trump thinking when it comes to future of Fannie, Freddie?

Investing.com -- Team Trump is exploring ways to monetize the U.S. government’s stakes in mortgage giants Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC), with an initial sale of up to $30 billion possible “as soon as this winter,” according to TD Cowen.

The White House’s focus is on “the government realizing a return rather than on the GSEs raising new capital,” the analysts said, adding that under the plan, “GSEs stay in conservatorship” with “an implicit government backstop.”

TD Cowen cautioned that “having the government monetize its investments in Fannie and Freddie is more complex than it may appear.” 

Key hurdles include “shareholder rights,” “control of the boards of directors,” “valuation,” “commitment fee,” and “limits on what the GSEs may do,” as well as the “potential to merge the GSEs prior to any sales.”

The bank said there is “a path” for President Donald Trump to move forward, but it would require “political risks that could impact both his popular support and GOP prospects in the midterm election.”

Despite those challenges, TD Cowen sees “reason for optimism” that the administration could begin sales, even if not by winter. 

One possibility is that “Trump could just do it regardless of political and market risk,” a tactic the firm calls “the tariff approach,” akin to his trade policy decisions.

Another option could be selling a stake to “a foreign sovereign wealth fund” or transferring control of the holdings to “a newly created domestic sovereign wealth fund,” both of which TD Cowen said “could involve less market and political risk.”

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