Shareholder Edge One Capital proposes Fannie-Freddie exit without higher rates

Edge One Capital has disclosed its stake in Fannie Mae and Freddie Mac, calling the government’s prolonged control of the mortgage giants the “largest shareholder rights violation in U.S. history.” It’s also proposing a road map to return them to private ownership without the consequence of higher mortgage rates.

The Raleigh, North Carolina–based investment firm’s announcement comes as the Trump administration signals potential plans to merge the government-sponsored enterprises (GSEs) and pursue a stock offering this year. Other high-profile investors, including Pershing Square Capital Management founder Bill Ackman, have also pressed for action.

“The prolonged control of these two vital institutions violates fundamental shareholder rights, distorts governance and leaves taxpayers with trillions in contingent liabilities,” the company said.  It argued that keeping Fannie and Freddie in conservatorship amounts to a “taking of private property without just compensation,” in violation of the Fifth Amendment.

Under the guidance of Varun Gupta, Edge One bought Fannie shares at 75 cents and Freddie shares at 67 cents in December 2023. The firm did not disclose the number of shares purchased.

Like other shareholders, the firm contends that the U.S. Treasury’s preferred share positions have been fully repaid. It points to more than $300 billion in dividends paid by the GSEs compared to the $187 billion they drew as capital support since the 2008 financial crisis.

Fannie and Freddie back more than $7 trillion in mortgages — the majority of the U.S. mortgage market — but according to Edge One, they remain subject to political interference and reduced accountability as the Federal Housing Finance Agency (FHFA) serves as both regulator and conservator.

The shareholder noted that this arrangement was unique among 2008 bailouts, which allowed companies such as JPMorgan, Bank of America, Citigroup, Goldman Sachs and AIG to receive capital infusions, loan guarantees or asset purchase commitments.

The exit plan

Edge One’s proposal calls for a leverage-style capital baseline of about 2.5%, supplemented with risk-based buffers and credit risk transfer (CRT) programs to shift exposure to private investors. 

The firm said the FHFA could gradually raise capital requirements as CRT activity changes, while the GSEs absorb modest cost increases through existing high margins. A government liquidity backstop — explicit or implicit — could further reduce funding costs and preserve market stability.

Once freed from conservatorship, the enterprises could leverage modernized data systems and AI analytics to protect assets and manage liabilities while streamlining operations and cutting costs.

The plan also leaves room for merging Fannie and Freddie into a single, well-capitalized institution — possibly under a proposed U.S. sovereign wealth fund — which could streamline operations, improve efficiency and lower the cost of capital.

“From a capital-raising perspective, a larger, simplified institution with a stronger balance sheet would likely attract broader investor interest and command a lower cost of capital,” Edge One’s proposal claims.