The plan starts by cleaning up the capital structure, assuming the U.S. Department of the Treasury’s preferred share positions in these companies have already been repaid. That’s based on the fact that the government-sponsored enterprises (GSEs) have paid $310 billion in dividends but drew only $193 billion from the Treasury after being placed in conservatorship in 2008.
The senior preferred position in these companies “has been economically repaid, delivering an internal rate of return of 11.6%,” Ackman said during a webinar hosted by investment bank Keefe, Bruyette & Woods (KBW) earlier this week.
New IPOs on the horizon
In a report following the webinar, KBW analysts said that Ackman believes the government — which effectively owns 80% of the GSEs — would only be recognizing 20% of the forgiveness value as a loss, since it would also amount to a write-down of existing liabilities.
“We do see merit in this argument, but we continue to see a conversion of the senior shares to common as the most likely outcome, since the government would still likely be leaving ~$50 billion on the table if looking at the situation through the liability write-down lens suggested by Mr. Ackman,” the analysts wrote.
The plan maintains the Preferred Stock Purchase Agreements (PSPAs), which provides incremental credit support to the GSEs. In exchange, the companies would pay a 25-basis-point commitment fee. Ackman said this would amount to “explicit government support for an economic return.”
According to the plan, the U.S. Treasury would retain the warrants for 79.9% of common stock, while junior preferred shares would either remain outstanding or be converted to common stock on a negotiated basis — possibly in connection with relaunched initial public offerings (IPOs).
Fannie Mae would conduct an IPO in 2026 to raise $5 billion, while Freddie Mac would follow in 2027 with a $15 billion offering.
“The government put a lot of pressure on the GSEs to raise preferred equity capital months before they declared the entities effectively in need of conservatorship,” Ackman said. “The BlackRocks and every major fixed-income buyer of these securities has a long memory of how they were treated.
“So that makes the IPO itself somewhat controversial, which is why we think it’s important not to rush both out at the same time.”
Ackman owns 210 million shares across the two companies — 10% of them preferred shares. He believes the shares could reach $30, far above their current range of $5 to $6, which reflects uncertainty about the future of the companies.
Lower capital requirements
Another key assumption in Ackman’s plan is that the GSEs should maintain a 2.5% capital requirement — significantly lower than the current level of 4.25%, which he calls overly “conservative” and impractical. This level of capital would tie up $100 billion or more in “wasted capital” that could be better deployed elsewhere, he argued.
“We think this is a very low-risk business, as long as they stay within the guardrails,”Ackman said. “We think these entities, properly capitalized, will have fortress balance sheets, and on top of that, they’ll have the benefit of hundreds of billions in government backstop.”
KBW analysts agreed with the need to lower capital levels. The 2.5% proposal is still significantly above the pre-financial crisis level of 0.45%, and it would be six times higher than what was required to cover cumulative losses from 2007 to 2011.
“Further, if the ~4.25% minimum capital remains in place, G-Fees would have to increase by 15-25 bp (from ~65 bp) in order to generate an acceptable return on capital. This would ultimately raise mortgage rates, which would be politically challenging,” the KBW analysts wrote.
Ackman’s plan maintains guarantee fees at 65 basis points.
When asked whether privatizing the GSEs would raise mortgage rates, Ackman said, “What could cause mortgage rates to go up is if the market believed that Fannie or Freddie MBS [mortgage-backed securities] were more risky once they were released from conservatorship.”
“Every sophisticated fixed-income investor will conclude that these are incredible — the guarantee is rock solid. Effectively, there will be an explicit government backstop of hundreds of billions on top of the 2.5% capital.”
Ackman also said there will always be an implicit government guarantee for Fannie and Freddie because they are “critical assets for the country, and therefore we can never let them fail.”
Both KBW and Ackman support creating a sovereign wealth fund (SWF) structure — as suggested by Treasury Secretary Scott Bessent — to help monetize the Treasury’s holdings in Fannie and Freddie.
As for the urgency of the matter, Ackman said, “I don’t think it’s No. 1 right now — tariffs are the No. 1 thing that obviously needs to be resolved. I would say tax policy is No. 2. But this could very well be No. 3. And it’s a nice thing to get done.”