Wall Street News Roundup: Fannie Mae and Freddie Mac on the Path to IPO, Why Electricity Is Getting More Expensive and Good News on Interest Rates

Speaker 1 I live in LA now, but lately I have been craving the seasons. Snow, hot cocoa, the whole thing.

Speaker 1 I don't even ski, but I have been daydreaming about working remotely from somewhere really cozy on the East Coast, like a cute little ski town for a little bit.

Speaker 1 And whenever I know I'm going to be gone for a while, I always remind myself that my home can actually be working for me while I'm away because I host my space on Airbnb.

Speaker 1 It is one of the easiest ways to earn passive income from something you already have, and that extra income feels particularly helpful this time of year as we approach the holidays. holidays.

Speaker 1 A lot of my friends say that sounds amazing, but where do you find the time to manage guests and bookings? And that's when I tell them about Airbnb's co-host network.

Speaker 1 Through Airbnb, you can find a local co-host who can help you set up your listing, handle reservations, communicate with guests, provide on-site support, even help with design and styling.

Speaker 1 I like to give a personal touch when I'm hosting on Airbnb. So I make a list of my favorite restaurants in the area and I hand write a note welcoming my guests to the property.

Speaker 1 My guests love it, but I also know that some of those little personal touches can take a lot of extra time. So this is the exact kind of thing that you would want your co-host to help you with.

Speaker 1 Whether you're traveling for work or chasing the snow or escaping it, or you've got a second place that just sits there empty more often than you'd like, your home doesn't have to just sit there.

Speaker 1 You can make extra money from it without taking on extra work. Find a co-host at airbnb.com slash host.

Speaker 2 Here's one piece of advice that I've given for years. Build an emergency fund.
Aim to stash away enough to cover at least three months of expenses in case your income suddenly drops.

Speaker 2 Sounds simple, right? But let's be honest, it's not. Saving even one month's worth of living costs can feel impossible.

Speaker 2 Just when you're making progress, that check engine light blinks on and derails your plans. Life already throws enough curveballs.
You don't need your bank adding to the chaos.

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Speaker 3 Chime is a financial technology company, not a bank. Banking services and debit card provided by the Bank Bank NA or Stripe Bank NA.

Speaker 3 Members, FDIC, slot me eligibility requirements and overdraft limits apply. Timing depends on submission of payment file.

Speaker 3 Fees apply at out-of-network ATMs, bank ranking, and number of ATMs, according to US News and World Report 2023. Chime, checking account required.

Speaker 2 Here's one piece of advice that I've given for years: build an emergency fund. Aim to stash away enough to cover at least three months of expenses in case your income suddenly drops.

Speaker 2 Sounds simple, right? But let's be honest, it's not. Saving even one month's worth of living costs can feel impossible.

Speaker 2 Just when you're making progress, that check engine light blinks on and derails your plans. Life already throws enough curveballs.
You don't need your bank adding to the chaos.

Speaker 2 That's why it's so important to choose one that makes savings easy and doesn't nibble away at your hard-earned money with ridiculous fees. QIIME understands that every dollar counts.

Speaker 2 That's why when you set up direct deposit through QIIME, you get access to fee-free features like free overdraft coverage, getting paid up to two days early with direct deposit, and more.

Speaker 2 With qualifying direct deposits, you're eligible for free overdraft up to $200 on debit card purchases and cash withdrawals. To date, CHIME has spotted members over $30 billion.

Speaker 2 Work on your financial goals through QIIME today. Open an account in just two minutes at chime.com/slash MNN.
That's chime.com slash MNN. Chime feels like progress.

Speaker 3 Chime is a financial technology company, not a bank. Banking services and debit card provided by the Bankor Bank NA or Stripe Bank NA.

Speaker 3 Members, FDIC, spot me eligibility requirements and overdraft limits apply. Timing depends on submission of payment file.
Fees apply at out-of-network ATMs.

Speaker 3 Bank ranking and number of ATMs according to U.S. News and World Report 2023.
Chime checking account required.

Speaker 4 I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand.

Speaker 1 It's time for some money rehab.

Speaker 1 All right, it is time for a roundup of the biggest stories on Wall Street and how they're going to affect you and your wallet.

Speaker 1 Today, we're going to talk about what could be the most important IPO of the year, and it's not Figma or Corweave.

Speaker 1 Next, I'm going to tell you the unexpected reason electricity prices are up, and then some good news on interest rates. First, let's talk about what could be one of the biggest moves in U.S.

Speaker 1 housing finance since the 2008 crisis. The Trump administration is gearing up to take mortgage giants Fannie Mae and Freddie Mac public again.

Speaker 1 The plan could value them at a combined $500 billion and raise around $30 billion for the government. If that sounds huge, it's because it is.

Speaker 1 We're talking about what could be one of the largest stock offerings in U.S. history.
But the question is, why now?

Speaker 1 Well, Fannie Mae and Freddie Mac are government-sponsored enterprises created by Congress to keep the U.S. housing market liquid, stable, and affordable.
Let's double-click on how they do that.

Speaker 1 So in the mortgage world, as we know, banks and other lenders make home loans to borrowers.

Speaker 1 Fannie and Freddie Freddie buy those loans from the lenders, and then they bundle all the loans into mortgage-backed securities. Mortgage-backed securities are then sold to investors around the world.

Speaker 1 And that's how it works. A quality that makes Fannie and Freddie special investment-wise is that they guarantee that investors will receive their payments even if homeowners default.

Speaker 1 So just to be clear, Fannie and Freddie don't lend money directly to homebuyers.

Speaker 1 Their function is to basically act as the middleman between the primary mortgage market where loans are made and global investors.

Speaker 1 This keeps mortgage money flowing even in tough times and helps stabilize rates around the country. So, why is this important?

Speaker 1 Well, because this system keeps money flowing to banks so they can keep making home loans, and it helps keep mortgage rates lower than they would be otherwise.

Speaker 1 Fannie and Freddie got a big shake-up back in 08 when they got caught up in the housing bubble, and they got in hot water for buying and guaranteeing too many risky loans.

Speaker 1 So if you got bad vibes when I said mortgage-backed securities or MBSs, that is your 2008 PTSD talking. Before 2008, Fannie and Freddie were both publicly traded companies.

Speaker 1 They each had their own stock ticker, FNM for Fannie and FRE for Freddie. Shares traded on the New York Stock Exchange and investors could buy and sell them just like any other corporate stock.

Speaker 1 When the market collapsed in 2008, so did Fannie and Freddie.

Speaker 1 The government then swooped in with a $187 billion bailout and put them under conservatorship, which basically means Uncle Sam took control.

Speaker 1 I know when we hear conservatorship, we think about Britney Spears, but companies get conservators too.

Speaker 1 And in the case of Fannie and Freddie, Washington effectively took control of their operations, dividends, and most of their profits.

Speaker 1 Technically, they still are public companies, just in a very unusual state. Their common stock still exists, but it was delisted from the NYSC because the share prices had collapsed.

Speaker 1 Trading then moved to the over-the-counter markets under new tickers, FNMA for Fanny and FMCC for Freddy.

Speaker 1 Getting banished to the over-the-counter markets is kind of like investing in the Twilight Zone. That's a topic for another episode.

Speaker 1 But still, some people invested that way with the thesis that this news could come one day. And if that was you, good on you.

Speaker 1 NetNet, you can still see and even buy shares of Fannie and Freddie today, but they represent a very limited ownership interest because the government owns the bulk of the economic value and controls the companies.

Speaker 1 I will say that Fannie and Freddie have been profitable for years and have paid back more in dividends than the bailout cost, but they have stayed under government control with Treasury owning about 80% of their stock through special warrants.

Speaker 1 Now, Trump wants to change that. The administration's plan is to sell between 5 and 15% of the government's stake in an IPO.

Speaker 1 Part of the motivation, as you probably guessed, is to raise money to pay down the national debt. It's forecasted that a Fannie and Freddie IPO could raise roughly $30 billion.

Speaker 1 Not enough to pay off the projected $1.7 trillion deficit, but helpful nonetheless. There's still a lot though up in the air.

Speaker 1 Like, will they IPO Fannie and Freddie separately or will they combine them into one mega mortgage company? And will they remain under conservatorship even after the sale?

Speaker 1 And most importantly, will the government keep guaranteeing their debt? That last point is huge, by the way.

Speaker 1 Right now, investors buy Fannie and Freddie mortgage-backed securities with the assumption that the government will back them if things go bad.

Speaker 1 Take that away or even make it a little more fuzzy, and you risk pushing mortgage rates higher by as much as a percentage point, according to some economists. And higher mortgage rates?

Speaker 1 Well, that means higher monthly payments, fewer people qualifying for loans, and a weaker housing market at a time when affordability is already in crisis. Then there's politics.

Speaker 1 Hedge fund billionaires like Bill Ackman and John Paulson have been sitting on big stakes of Fannie and Freddie for years now, betting that the government would eventually give them up.

Speaker 1 If this IPO happens, those bets could pay off in the billions. Wall Street banks advising on the deal could also make millions in fees.

Speaker 1 And for Trump, this would be a headline-grabbing financial victory, especially if it happens before the end of the year.

Speaker 1 So if you're thinking about buying in when or if the IPO happens, remember, this is not your average corporate IPO. Fannie and Freddie's future earnings depend heavily on government policy.

Speaker 1 And while President Trump has said he'd keep the implicit guarantee, no one's really explained how that would work or how permanent it would be.

Speaker 1 And if you're a home buyer or a homeowner, the risk here is that the government's support is weakened or seen as uncertain. Then mortgage rates could rise.

Speaker 1 Even half a percentage point can add hundreds of dollars to your monthly payment or tens of thousands of dollars over the lifetime of the loan. We have seen this movie before.

Speaker 1 Big financial institutions taking big risks with the housing market. And just like last time, the fallout, good or bad, will land on taxpayers, investors, and homeowners alike.

Speaker 1 So if you're on the fence about buying right now, this is just one more reason to keep a watchful eye on Washington and not just the Fed, but more on them later. Next, let's talk about electricity.

Speaker 1 Electricity is like most commodities in the U.S. The price is affected by supply and demand.

Speaker 1 And in recent years, there has been a major spike in demand from the power grid, thanks to one type of user, the AI data center.

Speaker 1 Or should I say the AI data centers plural because there are thousands of these in the United States and more being built now. Here's the context.

Speaker 1 AI data centers are so power hungry that a single one can take more electricity than an entire city the size of New Orleans.

Speaker 1 There's a new AI data center planned for outside Cheyenne, Wyoming, so massive that once it's built, it will use more electricity than every single home in the entire state combined.

Speaker 1 Now, to be fair, Wyoming is small, but still, this facility will use 1.8 gigawatts of electricity with the ability to scale up to 10 gigawatts.

Speaker 1 And to put that into plain English, one gigawatt can power 1 million homes. So this data center will need a whole lot of electricity.

Speaker 1 The concern here, naturally, is that these data centers will dramatically increase all of our electricity bills.

Speaker 1 States and utility companies are now looking for more ways to offset the massive electricity demand coming from AI data centers.

Speaker 1 One idea has been to raise rates specifically for the new data centers, but according to a recent report from an analytics firm, those targeted rate hikes wouldn't even generate enough revenue to cover the cost of building just one new natural gas power plant.

Speaker 1 In other words, if utilities can't recover the full cost from the data centers themselves, they'll spread these costs out across the entire customer base, meaning everyone's electricity bill could go up, not just the data centers.

Speaker 1 This is, by the way, already happening. In the Mid-Atlantic alone, one study found that 70% of the recent increase in energy costs could be traced directly to the demand from data centers.

Speaker 1 Now, I'll be honest, I love AI. I really do.
But let's just find a way to offset higher utility bills for everyone and the environmental impacts. Please and thank you.

Speaker 1 Plus, as anyone from a fire-prone area can tell you, our power grid isn't exactly in tip-top shape. To meet this new demand, power companies have to upgrade their facilities.
And guess what?

Speaker 1 Those costs are also getting passed on to us, the users.

Speaker 1 Which is wild when you think about it because these data centers are owned by some of the wealthiest companies in the world.

Speaker 1 Between tariffs and data centers, passing costs on to us, us, the consumers, are becoming the song of the summer. And honestly, I am not into it.
Lastly, inflation numbers just came in for July.

Speaker 1 And if you're hoping for lower interest rates, this is the update you've been waiting for. Here's the big headline: prices overall rose 2.7% year over year, but basically flat from June.

Speaker 1 On a month-to-month basis, inflation rose 0.2%, which is a slowdown from the prior month.

Speaker 1 But the Fed's favorite yardstick, core inflation, which strips out food and energy, ticked up 0.3% in July, the fastest pace in six months, pushing annual core inflation to 3.1%, the highest since February.

Speaker 1 Now, this probably sounds very confusing, but higher inflation typically means higher interest rates. But the market still thinks rate cuts are coming soon.

Speaker 1 Futures are now pricing in an 86% chance of a cut at the Fed's September meeting, with more likely in October and December. Why? Because the inflation story is more complicated than one number.

Speaker 1 One category, shelter, makes up 30% of the Consumer Price Index or CPI, which is our biggest inflation metric.

Speaker 1 That means if rent inflation slows, it drags the whole CPI down, even if other categories stay sticky. And this month, shelter inflation cooled to 0.2%,

Speaker 1 small but meaningful given its weight.

Speaker 1 The government's way of measuring shelter is a little bit laggy.

Speaker 1 The Bureau of Labor Statistics uses a survey asking homeowners what they think their house could rent for, something called owner's equivalent rent.

Speaker 1 This figure moves slowly and it tends to reflect housing trends from 6 to 12 months ago. Real-time rent trackers like Zillow have shown cooling for months.

Speaker 1 Now, the official CPI is finally catching up. That sets the stage for more downward pressure on inflation readings ahead.
And this echoes the laggy data story that we talked about last week.

Speaker 1 The most recent jobs report revisions showed that we've been adding fewer jobs than originally thought. July payroll gains were just 73,000 with downward revisions for prior months.

Speaker 1 Wage growth was subdued, unemployment ticked up, and the labor market looks less overheated.

Speaker 1 For the Fed, this checks the slowing economy box, making it easier to justify cutting rates without fearing a wage price spiral. So what is next?

Speaker 1 Well, the Fed's job is to keep inflation in check and to keep employment healthy. Right now, inflation is steady to slowing, jobs are cooling, and growth is under pressure from tariffs.

Speaker 1 That combination points to rate cuts starting in September. So what does this mean for you?

Speaker 1 If you've got credit card debt, adjustable rate loans, or if you're house hunting, rate cuts will lower borrowing costs over time. But that's not great news for savers.

Speaker 1 Lower interest rates mean that yields on savings accounts and CDs may drop. So lock in rates now if you can.
Historically, early Fed easing without a recession fuels stock market rallies.

Speaker 1 That is why Wall Street is watching these CPI prints so obsessively.

Speaker 1 For today's tip, you can take straight to the bank. With utility prices rising, let's work smarter, not harder.

Speaker 1 Most people think about lowering their electric bill by turning things off, but you can also save money by shifting when you use power.

Speaker 1 Many utilities quietly offer time-of-use pricing where electricity is cheaper during off-peak hours, so often late at night or early in the morning because demand is lower.

Speaker 1 If you schedule high-energy appliances like dishwashers, washing machines, or even EV chargers to run during those off-peak windows, you are paying less for the exact same amount of electricity.

Speaker 1 Bonus, some smart plugs and appliance apps let you automate this, so set it once and keep saving without even thinking about it again.

Speaker 4 Money Rehab is a production of Money News Network. I'm your host, Nicole Lapin.
Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes.
Do you need some Money Rehab?

Speaker 4 And let's be honest, we all do.

Speaker 4 So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me.

Speaker 4 And follow us on Instagram at MoneyNews and TikTok at Money News Network for exclusive video content. And lastly, thank you.

Speaker 2 No, seriously, thank you.

Speaker 4 Thank you for listening and for investing in yourself, which is the most important investment you can make.