The US government is considering taking the nation's two largest housing finance companies, Freddie Mac and Fannie Mae, public. The combined valuation of the two companies could reach $500 billion, potentially marking the largest restructuring of the US housing finance sector since the 2008 financial crisis.

However, the administration appears to be undecided about whether to merge the two companies or list them separately. Bill Ackman, the billionaire investor and manager of the hedge fund Pershing Square, has previously publicly proposed a merger.

Although the specifics remain uncertain, US President Trump is clearly excited about the Fannie Mae and Freddie Mac IPO. Last Saturday, he posted a photo of himself ringing the bell at the New York Stock Exchange for a company called "Great American Mortgage Corporation," whose stock symbol is MAGA.

Faced with the US government's ambitious plans, some on Wall Street are skeptical about the Fannie Mae and Freddie Mac IPO, suspecting it would be a risky gamble. A crucial issue is that as government-managed companies, Fannie Mae and Freddie Mac could have a significant impact on the US housing finance market if they were privatized and lost government support.

Wall Street Warning

Freddie Mac and Fannie Mae were established by Congress to provide a stable source of funding for the real estate market by purchasing bank mortgages and converting them into mortgage-backed securities (MBS), acting as a funding hub for the US mortgage market.

Freddie Mac and Fannie Mae were placed under conservatorship by the Federal Housing Finance Agency (FHFA) following a $187 billion bailout from the US Treasury in September 2008. Although the companies have returned to profitability in recent years and their dividends to the government have exceeded the bailout amount, they remain under government control.

Earlier this year, Jim Parrott of the Urban Institute and Mark Zandi, chief economist at Moody's, published a briefing highlighting the importance of the US government guarantee for Fannie Mae and Freddie Mac.

They pointed out that without unlimited US government support, Fannie Mae and Freddie Mac's financing costs could rise sharply, leading to a 0.6 to 0.9 percentage point increase in mortgage rates and a contraction in credit access. Ending government trusteeship and privatizing without a clear legislative or financial framework will only exacerbate risks and lead to a decline in systemic liquidity and stability.

LPL Financial Chief Fixed Income Strategist Lawrence Gillum also stated that if the government were to privatize Fannie Mae and Freddie Mac, maintaining a clear government guarantee during the multi-year process would be crucial. Failure to do so would only make housing even more unaffordable.

Analysts at KBW Bank commented on Monday that plans to list Fannie Mae and Freddie Mac at a $500 billion valuation are likely a pipe dream, with the likelihood of an IPO by the end of the year highly unlikely.

IPOX Vice President Kat Liu warned that even a partial sale of Fannie Mae and Freddie Mac's stake could place significant pressure on the market. The government must develop a clear and phased exit plan, otherwise investors might sell off later, fearing that the interests of minority shareholders have been marginalized.

Wall Street sees this contradictory and risky listing as a long-term undertaking. If the Trump administration wants to avoid losing investor confidence and disrupting the financial system, it will undoubtedly need to be more specific and methodical than before.