Billionaire Bill Ackman Set To Unveil New Proposal For Fannie Mae and Freddie Mac

Billionaire Bill Ackman Set To Unveil New Proposal For Fannie Mae and Freddie Mac

Billionaire investor Bill Ackman, founder of Pershing Square Capital Management, is reportedly preparing to release a new proposal concerning the future of Fannie Mae and Freddie Mac. The two Government-Sponsored Enterprises (GSEs) have been under U.S. government conservatorship since the 2008 financial crisis. Ackman is a long-time shareholder and advocate for a plan to recapitalize the entities and release them from government control.

Context & What Changed

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), collectively known as Government-Sponsored Enterprises (GSEs), are the foundational pillars of the United States' secondary mortgage market. They do not originate loans but purchase, guarantee, and securitize mortgages from lenders, creating a liquid market for mortgage-backed securities (MBS). This system is credited with enabling the widespread availability of the 30-year fixed-rate mortgage, a cornerstone of American housing policy. During the 2008 financial crisis, mounting losses from subprime mortgages pushed both GSEs to the brink of insolvency. To prevent a systemic collapse of the housing market, the U.S. Treasury, through the newly created Federal Housing Finance Agency (FHFA), placed them into conservatorship in September 2008 (source: fhfa.gov). As part of the bailout, the Treasury injected $187.5 billion into the GSEs and received senior preferred stock and warrants for nearly 80% of their common stock (source: U.S. Department of the Treasury).

From 2012 to 2019, a policy known as the "Net Worth Sweep" required the GSEs to transfer nearly all their profits to the Treasury as dividends on this senior preferred stock. This prevented them from rebuilding capital but resulted in them paying the Treasury over $300 billion, far more than the initial bailout amount (source: company filings). This arrangement sparked numerous lawsuits from private shareholders, including hedge funds like Bill Ackman's Pershing Square Capital Management and John Paulson's Paulson & Co., who argued the sweep was an illegal taking of private property. In 2019, the Treasury and FHFA agreed to suspend the sweep, allowing the GSEs to retain earnings and rebuild their capital base. The FHFA subsequently finalized a new regulatory capital framework in 2020, requiring the GSEs to hold combined capital of over $280 billion to be considered adequately capitalized and exit conservatorship (source: fhfa.gov). As of late 2025, they have rebuilt a combined capital buffer of approximately $90 billion through retained earnings, but remain significantly short of the target (author's assumption based on recent trends).

What has changed is the announcement that Bill Ackman, a prominent and vocal stakeholder, is set to unveil a new, specific proposal for reform. For years, the debate over GSE reform has been stalled by political gridlock in Congress, with multiple legislative efforts (e.g., Johnson-Crapo, Corker-Warner) failing to gain traction. Ackman's proposal represents a new catalyst from a major private sector actor, intended to break the impasse and force the issue back onto the policy agenda. It shifts the conversation from a theoretical debate to a concrete plan that policymakers in the Treasury, FHFA, and Congress will be compelled to evaluate.

Stakeholders

The future of Fannie Mae and Freddie Mac involves a complex web of powerful stakeholders with often conflicting interests:

U.S. Government: The primary stakeholder. The U.S. Treasury holds the senior preferred stock and warrants, representing a massive financial asset and a point of leverage. The FHFA, as conservator and regulator, has direct operational control and is responsible for ensuring the safety and soundness of the GSEs. Congress holds the ultimate authority to pass legislation that would fundamentally alter the housing finance system, but has been unable to achieve consensus.

Private Shareholders: This group includes institutional investors and hedge funds holding common and junior preferred stock purchased after the crisis at distressed prices. Their primary goal is the recapitalization and release of the GSEs, which would unlock the value of their shares. Bill Ackman's Pershing Square is one of the most significant players in this camp.

The GSEs (Fannie Mae & Freddie Mac): As entities, their management is focused on operating under the FHFA's direction, maintaining profitability, and building capital to eventually exit conservatorship.

Financial Industry: Mortgage lenders (banks, credit unions, and non-bank originators like Rocket Mortgage and United Wholesale Mortgage) depend on the GSEs to purchase their loans, providing them with the liquidity to make new ones. MBS investors, including U.S. pension funds and foreign central banks, rely on the implicit government guarantee that makes GSE MBS a safe, liquid asset class, second only to U.S. Treasuries.

U.S. Taxpayers and Homeowners: Taxpayers remain the ultimate backstop for the GSEs, bearing the risk of another bailout. Homeowners benefit from the liquidity and stability the GSEs provide, which translates into lower mortgage rates and the availability of long-term, fixed-rate products. Any reform carries potential consequences for mortgage affordability and availability.

Evidence & Data

The scale of the GSEs underscores the consequence of any reform proposal. Together, Fannie Mae and Freddie Mac guarantee or hold approximately $7.8 trillion in single-family and multifamily mortgage debt as of Q3 2025 (source: FHFA, company 10-Q filings). This represents roughly half of the entire U.S. residential mortgage market. Their continued profitability is a key factor in the reform debate. In 2024, Fannie Mae and Freddie Mac reported combined net income of over $25 billion, all of which was retained to build capital (author's estimate based on public filings).

The central challenge is the capital shortfall. The 2020 FHFA Enterprise Regulatory Capital Framework requires risk-based capital equivalent to 4.0% of assets plus a stability capital buffer, totaling an estimated $283 billion for the combined entities (source: fhfa.gov). With current retained earnings approaching $90 billion, this leaves a capital deficit of nearly $200 billion that would need to be raised from private markets to facilitate an exit from conservatorship. Ackman's proposal will almost certainly detail a mechanism for raising this capital. The value of the Treasury's stake is a critical variable. The senior preferred stock has a liquidation preference of $223 billion, and the warrants give the government the right to purchase 79.9% of the common stock at a nominal price (source: Treasury Department). Any viable plan must address how to restructure or compensate the Treasury for this stake.

Scenarios (3) with probabilities

Scenario 1: Legislative and Administrative Stalemate (Probability: 60%)

In this scenario, Ackman’s proposal generates significant media attention and debate but fails to create a political consensus. Congress remains divided, with fundamental disagreements between parties on the appropriate level of government involvement in housing finance. The executive branch, wary of taking unilateral action that could be politically explosive or legally challenged, opts to continue the current path of slow capital accumulation through retained earnings. The GSEs remain in conservatorship indefinitely, and the core structural risk in the housing finance system is left unresolved. This is the path of least resistance and therefore the most probable.

Scenario 2: Administrative Reform and Recapitalization (Probability: 30%)

The proposal acts as a catalyst for the Treasury and FHFA to pursue reforms that do not require new legislation. This would likely involve a negotiated settlement with major shareholders to resolve outstanding lawsuits, a consent agreement to end the conservatorship, and a plan to restructure the Treasury’s senior preferred stock into common stock or another instrument. This would be followed by a massive public offering to raise the requisite ~$200 billion in private capital. This path is complex and carries significant execution risk, but it avoids congressional gridlock. Its success would depend on the administration’s political will and favorable market conditions for what would be one of the largest capital raises in history.

Scenario 3: Comprehensive Legislative Reform (Probability: 10%)

Ackman’s proposal, or a modified version of it, successfully breaks the political logjam and becomes the basis for bipartisan legislation. Congress passes a new housing finance reform act that explicitly defines the GSEs’ future role, charter, and the nature of the government’s catastrophic backstop. This could involve turning them into regulated utilities with a defined rate of return, or creating a system with multiple competing guarantors. This is the most thorough and durable solution but also the least likely, given the extreme political polarization surrounding the issue for over a decade.

Timelines

Short-Term (0-6 months): Ackman's proposal is publicly released. Expect significant volatility in the stocks of Fannie Mae (FNMA) and Freddie Mac (FMCC). Congressional committees may hold hearings, and the FHFA and Treasury will issue public statements. Competing proposals from other stakeholders and think tanks may emerge.

Medium-Term (6-24 months): The path toward one of the three scenarios will become clearer. If Scenario 2 is pursued, the Treasury and FHFA would begin formal negotiations and planning for a potential capital raise. If Scenario 3 gains traction, a legislative bill would be drafted and debated in committee. Under Scenario 1, the issue will gradually fade from front-page news.

Long-Term (2+ years): The implementation of any significant reform is a multi-year process. A full recapitalization and exit from conservatorship under Scenario 2 would likely take 2-3 years to execute. Passing and implementing comprehensive legislation under Scenario 3 would be a 3-5 year endeavor at minimum.

Quantified Ranges

Capital Requirement: To exit conservatorship under the current FHFA rule, the GSEs must raise an estimated $180 billion to $220 billion in new private capital. The exact amount depends on the size and risk profile of their books at the time of the capital raise.

Valuation of Government Stake: The value of the Treasury's senior preferred stock and warrants is a key negotiation point. A settlement would likely value this stake in the range of $200 billion to $300 billion, which could be realized through cash payments, conversion to common equity, or other securities.

Impact on Mortgage Rates: The effect on consumer mortgage rates is highly debated. Proponents of reform argue a fully capitalized private system would be more resilient, causing no net change in rates. Skeptics, however, warn that removing the perceived full faith and credit guarantee of the U.S. government could increase the GSEs' funding costs, potentially raising mortgage rates for consumers by 20 to 60 basis points (author's assumption based on analyses from the Urban Institute and Congressional Budget Office).

Risks & Mitigations

Political Risk: Housing finance reform is a political 'third rail'. A plan perceived as a 'bailout for hedge funds' could be politically toxic, while one that significantly raises mortgage rates could face public backlash. Mitigation: Any successful proposal must be framed around protecting taxpayers from future bailouts and ensuring stability for homeowners. Bipartisan support is essential for legislative solutions, while administrative actions must be built on a strong legal foundation to withstand court challenges.

Execution Risk: A recapitalization of this magnitude is unprecedented and complex. A failed offering could destabilize markets and set back reform efforts for years. Mitigation: A carefully phased approach, managed by experienced investment banks and with clear, unwavering support from the Treasury and FHFA, would be critical. The government could use its existing stake to backstop the offering to ensure its success.

Market Disruption Risk: The GSE MBS market is the world's most liquid securitized debt market. Any reform that casts doubt on the implicit government guarantee or disrupts the functioning of the To-Be-Announced (TBA) market could have catastrophic consequences for market stability and mortgage liquidity. Mitigation: Reforms must explicitly preserve the key features that support the TBA market's liquidity. A new, clearly defined government backstop (e.g., an explicit, paid-for catastrophic insurance fee) would be necessary to reassure global investors.

Affordable Housing Mission Risk: The GSEs operate under a mandate to support affordable housing. A purely privatized model might prioritize profits over this public mission. Mitigation: Any reform must codify and strengthen the GSEs' affordable housing obligations, potentially through continued contributions to the Housing Trust Fund and Capital Magnet Fund, and robust oversight by the FHFA.

Sector/Region Impacts

Financial Services: The impact would be profound. Mortgage originators would face a new landscape for selling their loans. Investment banks would stand to earn significant fees from underwriting a recapitalization. The structure of the MBS market and the portfolios of its largest investors would be directly affected.

Housing and Construction: The entire U.S. housing market is predicated on the stability provided by the GSEs. A successful reform that creates a more resilient system would be a long-term positive. A failed or disruptive reform could trigger a housing market downturn by constricting mortgage credit. The impact would be national, with no specific regional differentiation.

Global Capital Markets: Foreign central banks and sovereign wealth funds are among the largest holders of GSE MBS. Their confidence in these securities is paramount. Reform must be managed in a way that maintains this confidence to prevent capital flight and a spike in U.S. interest rates.

Recommendations & Outlook

For Government and Regulatory Bodies (Treasury, FHFA, Congress):

Policymakers should treat Ackman’s proposal as a serious opportunity to restart a critical, long-overdue conversation. They should conduct rigorous, independent analysis of the plan’s impact on taxpayers, homeowners, and market stability. While comprehensive legislative reform remains the ideal outcome (scenario-based assumption), its low probability suggests that parallel exploration of durable administrative solutions is prudent. The primary goal should be to transition the GSEs to a state where they are fully capitalized to withstand a severe economic downturn, thus protecting taxpayers from future bailouts.

For Large-Cap Financial Institutions (Banks, Lenders, Asset Managers):

Firms should intensify their scenario planning efforts. Business models reliant on the current GSE structure must be stress-tested against potential changes, including higher guarantee fees (g-fees), altered product standards, or the emergence of new competitors. Close monitoring of policy developments in Washington is essential for strategic planning.

For Infrastructure and Public Finance Entities:

The stability of the housing market is a key variable for municipal finance (via property taxes) and infrastructure investment. A stable resolution for the GSEs would provide a more predictable long-term economic environment. Conversely, market disruption poses a significant risk to the economic base that underpins public finance.

Outlook:

Bill Ackman’s proposal will successfully force the issue of GSE reform back into the spotlight. However, the political obstacles that have stymied progress for 17 years remain formidable. The most likely outcome is a continuation of the status quo in the short term. (Scenario-based assumption): The proposal’s true impact may be in shifting the Overton window, making an administrative-led recapitalization and release (Scenario 2) appear more plausible and politically acceptable over a 3-5 year horizon. The binary nature of the outcome for shareholders—enormous upside in a successful reform versus near-total loss in a continued stalemate—will ensure this remains one of the most closely watched and consequential issues in U.S. finance.