Ackman: Impossible to scrap Fannie and Freddie
Policymakers of all stripes agree that Fannie Mae and Freddie Mac need to be scrapped. But a growing contingent of wealthy investors see otherwise.
Shares in the two mortgage giants spiked Monday after activist investor Bill Ackman touted their merits at an industry conference in New York.
{mosads}According to reports, the billionaire hedge fund manager, who owns shares in both entities, argued that the two enterprises are not easily replaced, and that the market would not accept alternatives being considered in Congress.
“We don’t believe there’s an alternative in the U.S. housing market to Fannie and Freddie,” he told CNBC.
The two government-sponsored enterprises have existed on a government lifeline since 2008. And while the two have turned over more in profits than they required in a bailout, they are commonly seen by both parties as a failed model that needs to be overhauled as part of a broader makeover of the housing market.
But Ackman argued just the contrary, saying that if the two were to refocus on less risky business practices, they would be totally viable. Stocks in the enterprises are currently trading around $4 a share, but Ackman suggested they could be worth five times that easily.
Under recently-modified terms of the bailout arrangement, all profits made by Fannie and Freddie must be turned over to the Treasury Department. Some investors have sued the Treasury Department to challenge that shift, seeking to reserve some profits for their investments.
Ackman is the latest in a growing group of hedge funds that are actively investing in Fannie and Freddie and resisting efforts from Congress to do away with them. The push comes as a bipartisan group of senators are trying to advance their housing finance reform legislation, which would wind down Fannie and Freddie and bring more private capital into the mortgage market with a last-resort government guarantee.
Senate Banking Committee Chairman Tim Johnson (D-S.D.) and ranking member Sen. Mike Crapo (R-Idaho) were set to pass their legislation out of committee last week, but postponed it to try and drum up more support. Odds of its passage are seen as a longshot, so garnering strong support from all corners at the committee level would be critical to give it momentum going forward.
The White House has also called for the elimination of Fannie and Freddie, and have pushed the Senate bill. Meanwhile, legislation offered by House Republicans would do the same, and go even further in not giving the government any role in a remade housing market.