Trump’s latest Fannie and Freddie comments are confusing the stock and bond markets

Shares of mortgage giants Fannie Mae and Freddie Mac are whipsawing after President Trump emphasized this week that his administration is working on taking the companies public while maintaining implicit backing by the US government.

But Trump provided few new details on how he could engineer such a complex undertaking without upending the country’s $9 trillion mortgage market and sending home loan rates spiraling.

“Our great Mortgage Agencies, Fannie Mae and Freddie Mac, provide a vital service to our Nation by helping hardworking Americans reach the American Dream — Home Ownership. I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the U.S. Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President,” Trump said in a Truth Social post late Tuesday.

Shares of the two government-sponsored enterprises surged initially on Wednesday before paring gains after Bill Pulte, the chairman of the two companies, said in an interview that Trump didn’t say he would look to fully privatize the companies, and they could go public while remaining under government control.

Fannie Mae stock (FNMA) closed 2.2% higher on Wednesday, while Freddie Mac shares (FMCC) finished up 5.3%. But both were dropping as of midday Thursday.

The mortgage bond market is so far signaling similar confusion. After Trump’s latest post, the extra yield investors demand as compensation for the risk of holding on to mortgage bonds shrank slightly, then rose a bit before tightening again.

“The devil is really in the details with this one,” said Walter Schmidt, senior vice president and manager for mortgage strategies at FHN Financial. “Policy wish lists and reality are very different things.”

Trump’s latest statement looks to some like an effort to reassure markets that Fannie and Freddie will maintain some sort of government guarantee even once they are released from the government’s control, a crucial factor that helps keep mortgage bond yields and, by association, mortgage rates low.

Under the current system, Fannie and Freddie are under formal government control, giving them the same near-perfect credit ratings as the US government. Debt investors consider the mortgages they purchase, package, and sell as bonds as ultra low-risk.

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Trump’s proposal for an implicit guarantee would be a return to Fannie and Freddie’s status before the 2008 financial crisis, when the mortgage giants weren’t formally supported by the government but were generally considered too big to fail, leading to the expectation that the government would step in if they ran into trouble. That setup also gave investors confidence that buying Fannie and Freddie mortgage bonds is low-risk, though not quite as low-risk as a setup with explicit government backing.