Fannie and Freddie Soar 60% as Ackman Makes His Move on Washington

Fannie Mae and Freddie Mac are on a tear. Both stocks have climbed more than 60% from Oct. 14 through Monday's close, and they were up roughly 3% again on Tuesday. The spark: Bill Ackman, the billionaire founder of Pershing Square Capital Management, telling CNBC's 'Squawk Box' that the midterm elections are the only reason the two mortgage giants haven't been cut loose from federal conservatorship yet.

Ackman isn't shy about the upside he sees. In his quarterly letter to shareholders, released Monday, he wrote that Fannie and Freddie could increase '10-fold from current share prices.' Pershing Square holds both names. He argues that privatizing the government-sponsored enterprises would shield them from political interference, warning that whichever party controls them in conservatorship can use them to sway elections — for instance, by pushing looser credit standards to expand homeownership.

That scenario matters far beyond the two companies, Ackman said. 'If they're going to move more aggressively into borrowers with lower credit quality, for example, to achieve a political objective, that's going to have an impact on trillions of dollars outstanding mortgage securities,' he told CNBC. MBS investors, he added, want certainty about how the entities will be run — and that 'only gets resolved in a world in which they exit conservatorship' and become publicly traded companies. 'We set the rules. In conservatorship, the president can do anything.'

The backstory is long and messy. Fannie and Freddie buy mortgages from lenders, bundle them into mortgage-backed securities and keep the housing market's plumbing flowing. They were shoved into conservatorship in September 2008 during the financial crisis, delisted from the New York Stock Exchange in 2010, and have traded over the counter ever since. President Donald Trump has backed ending the arrangement, but it remains politically and economically combustible.

The mechanics are thorny. Both entities operate under strict capital thresholds and would need recapitalizing, possibly by issuing common equity. The Treasury Department would also have to map an exit for its roughly $388 billion ownership stake, held through preferred securities and warrants. Congress may have to pass legislation reshaping the government's role in mortgage financing and home-loan guarantees. Treasury Secretary Scott Bessent recently told 2Way's 'The Morning Meeting' podcast that the administration will tackle the ownership structure 'next year, the year after,' with affordability guiding the call.

The big fear is that freeing the GSEs would widen mortgage-backed security spreads over Treasuries, making home loans pricier. Bessent has tried to calm that nerve. 'Whatever we do is going to be guided by making sure that the spread on [agency] mortgages … over the Treasury does not increase,' he said. Ackman and the market are betting the exit happens sooner rather than later — and that the midterms are the gate.