Economist Peter Schiff is sounding the alarm on a potential merger of mortgage finance giants, the Federal National Mortgage Association FNMA or Fannie Mae, and the Federal Home Loan Mortgage Corp FMCC, popularly known as Freddie Mac.
According to Schiff, this merger could set the stage for risks that surpass those leading up to the Great Financial Crisis in 2008.
A Monopoly That Creates “A Moral Hazard”
Schiff argues that merging Fannie Mae and Freddie Mac into a single company would effectively create a monopoly in the U.S. mortgage market.
One that he says can “leverage an explicit” government guarantee, which turns “risky mortgages into U.S. treasuries.” Here, Schiff is referring to the fact that government guaranteeing mortgages could result in them having the same creditworthiness as Treasuries.
See Also: Housing Market Has One Big Problem—Mortgage Rates Are Still Too High
According to Schiff, such a setup will lead to a “moral hazard” far greater than what existed prior to the Great Financial Crisis of 2008.
Trump Hints At Unified “MAGA” Listing For Fannie And Freddie
On Monday, President Donald Trump hinted at the possibility of merging the two government-sponsored companies, before listing them under the ticker symbol “MAGA.”
Unlike Schiff, hedge fund manager, Bill Ackman has backed the move, saying that the resulting cost synergies of the merged institution can help lower mortgage rates.
“A merger would also reduce the cost and risks of government oversight as there would be only one institution that would require FHFA oversight. I suspect that this is @realDonaldTrump’s idea as implied by his post below. It’s a really good one,” Ackman said in a post on X.
Ackman, whose Pershing Square Holdings has been the largest common stockholder in both companies for over 13 years, has been advocating for an end to their Federal conservatorship for the past several months.
He’s also called for the cancellation of $348 billion in Senior Preferred Stock (SPS) liability on the balance sheets of both companies, calling it a “fictitious” figure that distorts economic realities.
Shares of Fannie Mae and Freddie Mac were surging on Monday, trading up by 15.07% and 13.16%, at $11.49 and $9.03, respectively, following news of a historic public offering.
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