Bill Ackman Sees 'Half a Trillion' of Value in Fannie and Freddie. Should Investors Follow Him?

Bill Ackman has been betting on Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC) for more than a decade, and on Tuesday, he made perhaps his loudest case yet for the government-sponsored enterprises.

Speaking on Pershing Square's (NYSE:PS) third-quarter earnings call, Ackman said releasing the two mortgage giants from government conservatorship is "a political imperative" for Republicans, not just an economic one. He estimated it would create "half a trillion" dollars of value, "80% of which is held by taxpayers," and said that figure is conservative.

"It will be the greatest real estate deal of all time," he said.

Why Ackman Thinks the Clock Is Ticking

Fannie and Freddie have been under government control since September 2008, when they were rescued during the financial crisis. Ackman on Tuesday argued that leaving them there is a risk for Republicans. In conservatorship, he said, "the government has godlike powers" over housing policy, mortgage terms and underwriting, and the party can't be sure the next president will be one of its own.

He also pointed to timing. Ackman said Treasury Secretary Scott Bessent has told him the companies' ownership needs to be resolved in 2027 or 2028, before President Trump leaves office. With midterm elections being held Tuesday, Ackman said he expects at least one chamber of Congress to slip from Republican control, which would leave a Fannie and Freddie release as one of the few big economic moves the president can still make on his own.

The billionaire investor even pictured the moment, saying: "It's an opportunity for the president to ring the bell at the New York Stock Exchange and literally deliver hundreds of billions of dollars of value to taxpayers."

Remember Who's Talking

Ackman isn't a neutral observer. He said Pershing Square owns about 10% of both companies and treats them almost as a single position. If a release happens on good terms for shareholders, his firm wins big.

That doesn't make him wrong. But his "half a trillion" is a forecast from an investor with a stake in the outcome, and much of that value, by his own math, would go to taxpayers rather than to common shareholders. The Treasury holds warrants to buy 79.9% of each company's common stock, and how those are handled in any release will decide what's left for everyone else.

These Aren't Normal Stocks

Unlike most financial stocks, Fannie and Freddie haven't traded on the New York Stock Exchange since 2010. Their regulator, the Federal Housing Finance Agency, ordered them delisted after their shares sank to near the exchange's $1 minimum price, and they've traded over-the-counter ever since.

That's important for investors because over-the-counter stocks generally have lower trading volume, wider bid-ask spreads, and larger price swings. Fannie Mae shares traded around $5.26 on Tuesday, and Freddie Mac shares around $4.85, both down about 50% over the past year, underscoring just how volatile these names can be.

The legal fight isn't settled either. Ackman said shareholders won their lawsuit over how the government took the companies' profits, but the government keeps appealing, and he's not against a lengthy legal battle: "I wouldn't mind it going to the Supreme Court because I think the Supreme Court might attract more attention to how inappropriate and unfair this was," he said on Tuesday.

So, Should You Follow Him?

For most investors, it's probably not the best move. Whether Fannie and Freddie stock pays off depends almost entirely on decisions made in Washington: when the companies are released, how much capital they must hold, and what happens to the Treasury's stake. None of those can be predicted from fundamentals, and the timing could slip past the window Ackman described.

Ackman can afford to wait years and ride out a 50% drop, but many people can't. If you want exposure anyway, keep it to a small slice of your portfolio, money you could afford to lose, and be ready for big swings. For everyone else, this might be one to watch from the sidelines, and there are steadier ways to invest in housing stocks.

Jonathan Ponciano has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.