The Art of the Deal

January 16, 2025

Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on
publicly available information. Pershing Square recognizes that there may be confidential or otherwise nonpublic information in the possession
of the companies discussed in this presentation that could lead these companies and others to disagree with Pershing Square’s analyses,
conclusions and opinions. This presentation and the information contained herein is not investment advice or a recommendation or solicitation
to buy or sell any securities. All investments involve risk, including the loss of principal.

The analyses provided may include certain forward-looking statements, estimates and projections prepared with respect to, among other things,
the historical and anticipated operating performance of the companies discussed in this presentation, access to capital markets, market
conditions and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square
concerning anticipated results that are inherently subject to significant economic, competitive, legal, regulatory, and other uncertainties and
contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or
completeness of such statements, estimates or projections or with respect to any other materials herein and Pershing Square disclaims any
liability with respect thereto. Any forward-looking statement contained in this presentation is subject to various risks and uncertainties. Actual
results may vary materially from the estimates and projected results contained herein. The information contained in this presentation may not
contain all of the information required in order to evaluate Fannie Mae or Freddie Mac and the proposal described in the presentation. The
opinions, analyses, conclusions and proposals presented herein represent the views of Pershing Square and not those of any third party.

Funds managed by Pershing Square and its affiliates own shares, predominantly common stock, of Federal National Mortgage Association
(“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”). Pershing Square manages funds that are in the business of
trading – buying and selling – securities and financial instruments. It is possible that there will be developments in the future that cause
Pershing Square to change its position regarding Fannie Mae and Freddie Mac. Pershing Square may buy, sell, cover or otherwise change the
form of its investment in Fannie Mae and Freddie Mac for any or no reason. This presentation speaks only as of the date it is made. The
information presented or contained herein is subject to change without notice. Pershing Square hereby disclaims any duty to provide any
updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.

This presentation contains a high-level overview that reflects our subjective beliefs, assumptions, and assessments regarding Fannie Mae and
Freddie Mac. There can be no assurance that Fannie Mae and Freddie Mac will be able to implement a particular strategy or achieve particular
results. The “Framework for Ending Conservatorship” and “Illustrative GSE Restructuring” sections of this presentation contain frameworks,
projections, and models for illustrative purposes only. They are calculated based on certain inputs and underlying assumptions, which may not
prove to be correct, which may not reflect all considerations, and are subject to various risks and inherent limitations. Although Pershing Square
believes the calculations and models described herein are based on reasonable assumptions, the use of different assumptions would produce
different results.

1
Agenda

Background on Fannie and Freddie

Conservatorship and the Net Worth Sweep

A Framework for Ending Conservatorship

Illustrative GSE Restructuring

2
Background on
Fannie and Freddie

3
Prior to the Great Depression

Mortgage availability was limited, with 5-to-10 year terms, floating

interest rates, and ~50% loan-to-value ratios

 Mortgages were primarily originated and retained by local thrifts,

commercial banks, and insurance companies

 Banks would lend at floating interest rates for a short term to match the
structure of their deposit funding sources

 Supply of mortgage credit was limited and required large initial down
payments

 Availability and pricing of mortgage credit varied widely across the U.S.
due to localized funding

 Homeownership rate was ~45%

4
The Great Depression

During the Great Depression, the U.S. mortgage market was

paralyzed and required significant government involvement to
eventually recover

 The unemployment rate was nearly 25%

 Housing prices declined as much as 50%

 ~25% of mortgages were in default and ~10% of homes were in

foreclosure

 Homeowners were unable to satisfy their principal payments and were

unable to refinance their short-term mortgages

 The banking system was near collapse and was unable and unwilling to
provide a meaningful amount of mortgage credit

5
Government’s Response to the Great Depression

During the Great Depression, the government undertook a series

of mortgage-related initiatives that culminated with the creation
of Fannie Mae
 1933: Created Home Owners’ Loan Corp
 Issued government-backed bonds to fund the purchase of defaulted mortgages from
financial institutions
 Converted short-term, variable rate mortgages into long-term, fixed-rate mortgages

 1934: Enacted National Housing Act, which established the Federal

Housing Administration
 Provided credit insurance on long-term, fixed-rate mortgages made by approved
lenders

 1938: Created Fannie Mae as a government agency

 Purchased FHA-insured loans to provide liquidity for mortgage lenders

Fannie Mae was chartered to support liquidity, stability, and affordability in

the secondary mortgage market
6
Evolution of the GSEs

Fannie and Freddie (collectively, the “GSEs”) have evolved

significantly since the creation of Fannie Mae in 1938
 1948: Fannie allowed to purchase loans insured by the Veterans
Administration
 Provided liquidity to long-term, low-down-payment mortgages issued to veterans
returning from WWII

 1954: Fannie converted into a “public-private, mixed-ownership” company

 1968: Fannie converted into a for-profit, shareholder-owned enterprise

 Fannie allowed to buy non-government backed mortgages

 1970: Freddie Mac created to securitize mortgages issued by the savings

and loans institutions

 1971: Freddie issued the first conventional loan MBS

 1989: Freddie converted into a for-profit, shareholder-owned enterprise

7
The Rise of the GSEs

Since the 1980s, Fannie and Freddie have played an increasingly vital
role in providing borrowers with access to an ample supply of credit
Outstanding Residential Mortgages Since 1980 ($ in Billions)
$22,500,000

$20,000,000

$17,500,000

$15,000,000

$12,500,000
GSEs
$10,000,000

$7,500,000
Private-Label MBS

$5,000,000
Banks, Thrifts &
Insurers
$2,500,000

–
Other

Source: Federal Reserve.

Note: GSEs includes Ginnie Mae. 8
The GSEs’ Presence is Vital Today

Fannie and Freddie’s role has increased significantly since the

financial crisis
Share of Outstanding Residential Mortgages Held or Guaranteed Since 2000

100%

90%
Banks &
80%
Other
70%

60%

50%
Private-
40%
Label MBS
30% GSEs

20%

10%

0%

Source: Inside Mortgage Finance.

Note: GSEs includes Ginnie Mae. 9
Housing is a Key Asset for the Average American

Average household net worth consists primarily of equity in the

home. This equity, as a proportion of household net worth,
increases as household income decreases

Average Housing Wealth as a % of Household Net Worth By Income Percentile

80%

70%

60%

50%

40%

30%

20%

10%

–
Bottom 25% Lower Middle Upper Middle Top 25%

Source: 2021 Census Survey of Income and Program Participation. 10

U.S. Mortgages are Predominantly 30-Year Fixed-Rate

The widespread use of the 30-year fixed-rate mortgage

differentiates the U.S. from other large mortgage markets

Term Length and Interest Rate Type as % of Outstanding Mortgages

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
Finland Sweden Ireland UK Netherlands Germany Denmark Spain U.S.

Long-Term Fixed (>10 years) Medium-Term Fixed (5-10 years)

Short-Term Fixed (1-5 years) Variable Rate (<1 year)

Source: Federal Reserve, European Mortgage Federation Q2 2024 Quarterly Review of European Mortgage Markets. 11
Preserving the 30-Year Fixed-Rate Mortgage is Essential

The 30-year, prepayable, fixed-rate mortgage has a variety of

attributes that make it an affordable and borrower-friendly
financing option for the average American

 30-year amortization term

 Long-term nature allows for smaller monthly mortgage payments
 Removes the refinancing risk inherent in balloon payment loans

 Fixed interest rate

 Provides certainty of recurring monthly mortgage payments
 Protects against rising interest rates

 Prepayment option without penalty

 When interest rates decline, borrowers have the ability to refinance at
a more attractive rate

12
U.S. Mortgages are Predominantly Funded by MBS

The large degree of MBS funding differentiates the U.S. from

other large mortgage markets

Mortgage Funding as % of Outstanding Mortgages

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
Germany Ireland France Netherlands Italy Spain Sweden Denmark U.S.

Deposits & Other Mortgage Bonds MBS

Source: The Urban Institute Housing Finance at a Glance, European Mortgage Federation HYPOSTAT 2024 – A Review of Europe’s Mortgage and Housing Markets. 13
The GSEs’ Role in the Marketplace

The GSEs were chartered by Congress to support liquidity,

stability, and affordability in the secondary mortgage market

Fannie and Freddie’s role in the mortgage market

 Convert long-term, illiquid mortgages into highly-liquid mortgage

backed securities (MBS)

 Provide insurance on the credit risk of the underlying mortgages of

the MBS

 Facilitate the sale of MBS to the global capital markets

By creating a highly liquid investment security that is insured against credit

risk, the GSEs allow borrowers to access the global capital markets

14
The GSEs Enable Low-Cost 30-Year Mortgage Availability

Fannie and Freddie facilitate widespread access to the 30-year,

prepayable, fixed-rate mortgage at a low cost

 Widespread access to credit

 The global capital markets provide a much larger and more stable source of
credit than local lending institutions

 Long-term, fixed-rate financing

 Lenders are willing to originate a high proportion of long-term, fixed-rate
mortgages because Fannie and Freddie can convert the mortgages into
highly liquid MBS, which the lender can then retain or sell

 Low-cost financing
 When interest rates decline, borrowers can refinance, lowering their monthly
payments
 The high level of liquidity for GSE MBS lowers mortgage interest rates

15
Prior to the Great Financial Crisis, the GSEs Had
Two Distinct Lines of Business

Fannie and Freddie

Guarantees Fixed-Income Arbitrage (FIA)

(Ongoing: ~$7.6 trillion guarantees, (Wound-down: ~$1.6 trillion
of which 88% are single-family) assets at 2008 peak)(1)

 High-quality, low-risk  Low-quality, high-risk

 Serves a vital purpose for the  Did not serve a credible purpose
mortgage market for the mortgage market

Fannie and Freddie’s failure during the GFC was exacerbated by two initiatives not core to
their original charter – the FIA business, and their guarantee of subprime and Alt-A loans

(1) Fannie and Freddie today hold ~$180 billion of investment assets on balance sheet, a large portion of which is related to warehousing of mortgage loans for future MBS
issuances, as well as workouts of non-performing loans in prior MBS issuances. 16
Prior to the Great Financial Crisis, the GSEs Had
Two Distinct Lines of Business

Fannie and Freddie

Guarantees Fixed-Income Arbitrage (FIA)

(Ongoing: ~$7.6 trillion guarantees, (Wound-down: ~$1.6 trillion
of which 88% are single-family) assets at 2008 peak)(1)

 High-quality, low-risk  Low-quality, high-risk

 Serves a vital purpose for the  Did not serve a credible purpose
mortgage market for the mortgage market

(1) Fannie and Freddie today hold ~$180 billion of investment assets on balance sheet, a large portion of which is related to warehousing of mortgage loans for future MBS
issuances, as well as workouts of non-performing loans in prior MBS issuances. 17
Core Guarantee Business Model: High-Quality

The GSEs guarantee the timely payment of interest and principal on a

~$7.6 trillion portfolio of mortgage-backed securities

 Inherently simple insurance business model

 Insure mortgage-backed securities (“MBS”) in exchange for

premiums called guarantee fees (“g-fees”)

 Payment is received upfront in exchange for the promise to pay

potential losses incurred in the future

 Leveraged to positive long-term trends in the housing markets

 Enormous scale allows the GSEs to be the low-cost provider

 Asset-light, high-return-on-equity business model

 Does not rely on funding from the capital markets

 Does not require the use of derivatives

18
Single-Family Guarantee Business: Low-Risk

Guaranteeing the monthly payment of interest and principal on a

30-year, fixed-rate, prepayable mortgage is a low-risk business

 Low liquidity risk because defaults do not immediately accelerate

payments to MBS holders – the GSEs can pay scheduled interest and
principal for up to two years before repurchasing delinquent loans

 Large number of loans in portfolio limits concentration risk

 Geographically diverse portfolio mitigates the impact of regional

economic fluctuations

 A nationwide housing downturn is rare

 A borrower’s equity in their home mitigates loss severity by serving as

first-loss protection for credit guarantee

 Borrower’s equity decreases the likelihood of a default

19
Single-Family Guarantee Business: Low-Risk (Cont.)

The GSEs’ credit guarantee is structurally senior to a borrower’s

equity in their home

Illustrative Example of GSE Guarantee on 80% LTV Mortgage

$100
Owner’s Equity
$20

Home If the mortgage defaults,

Value Mortgage home prices would need
$80 Mortgage
to decline by more than
Guarantee 20% for the mortgage
guarantor to suffer a loss

As home values increase over time and mortgages amortize, the borrower’s equity increases
and the GSEs’ credit guarantee become even lower risk

20
Single-Family Guarantee Business: Low-Risk (Cont.)

Fannie and Freddie guarantee the low-risk mortgages of middle-class

borrowers with excellent credit

Fannie Single-Family Acquisitions Freddie Single-Family Acquisitions

100% 850 100% 850

90% 800 90% 800

760 756 755 758 759 753 752 754
747 746
80% 750 750
80%
Weighted Avg. Loan-to-Value Ratio

Weighted Avg. Loan-to-Value Ratio

78% 78% 700 78% 78% 700

Weighted Avg. FICO Score

75%

Weighted Avg. FICO Score

70% 70% 75%
71% 71% 71%
69% 650 650
60% 60%
600 600
50% 50%
550 550
40% 40%
500 500
30% 30%
450 450
20% 400 20% 400

10% 350 10% 350

0% 300 0% 300
2020 2021 2022 2023 2024 2020 2021 2022 2023 2024
YTD YTD

Source: Company filings. 21

Single-Family Guarantee Business: Low-Risk (Cont.)

As dominant participants in the market, the GSEs have historically retained

access to capital as other participants have been forced to exit. This has
allowed them to significantly expand their market share in economic
downturns, when mortgage underwriting conditions are most favorable

 Economic downturns usually result in a decline in housing prices

and a decrease in interest rates

 Lower housing prices result in reduced loan-to-replacement cost

ratios

 Lower interest rates result in a lower mortgage payment burden

 Lower initial interest rates decrease the probability of future

prepayments

Guarantees issued during an economic downturn have a lower probability of

default, a longer time period to default, lower severity upon default, and greater
persistency, which increases the overall quality of the guarantee portfolio and
de-risks the business model
22
Fannie and Freddie’s Multifamily Guarantee
Business: High-Quality and Low-Risk
The GSEs play an important role in the multifamily market, guaranteeing
38% of multifamily mortgage debt outstanding in the United States

 Provides mortgage market liquidity for properties with five or more

residential units
 The GSEs purchase multifamily loans and securitize them into MBS that they
then guarantee and sell, akin to what they do in the single-family business

 Multifamily differs from Single-Family in several ways

 Loans collateralized by apartment buildings with many rent-paying tenants
 Borrowers are investment professionals rather than middle-class homebuyers
 Typical loan has a term of 5 to 15 years with prepayment penalties, vs. 30 years
and no prepayment penalty for single-family
 Can be more resilient in a recession as consumers seek to rent vs. buy

The 2008 financial crisis demonstrated the resilience and attractiveness of the
GSEs’ multifamily guarantee business, which produced de minimis losses. We
assume this business continues operating in its current form going forward
23
Single-Family Guarantee Business:
Low Guarantee Fees Prior to the Financial Crisis

Fannie and Freddie’s g-fees have averaged approximately 30bps since

1990, but have risen steadily since the financial crisis

Average G-fee on Single-Family Guarantee Portfolio from 1990 to 2023 (bps)

60

50

40 Long-term Average:
~30 bps
30

20

10

0
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23

Fannie Mae Freddie Mac

Source: Company filings and Pershing Square estimates.

Note: Based on single-family guarantees for Fannie Mae and Freddie Mac. 24
Limited Credit Losses Outside of the Financial Crisis

The GSEs generated consistent profits and high ROEs at historical

g-fee levels because of limited credit losses and limited capital

Credit Losses for Single-Family Guarantees from 1990 to 2023 (bps)

80

70

60

50

40

30

20

10

(10)
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23

Fannie Mae Freddie Mac

Source: Company filings and Pershing Square estimates. 25

Large Losses During the Financial Crisis

The GSEs’ guarantee business experienced extraordinary losses during

the financial crisis, but returned to profitability in 2013
Pre-Tax Income for Single-Family Guarantee Segment ($ in Billions)
$19 $19
$13

$6 $6
$3 $4 $4 $4 $3
$2 $2 $2 $2 $3
$1
N/A N/A N/A N/A N/A

($0)
($1)($0)

($10)
Fannie Mae
($15)
Freddie Mac ($17)

($22)
($24)
($27)

 ($31)

($65)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Company filings and Pershing Square estimates.

Note: Freddie Mac did not disclose a separate guarantee segment prior to 2005. Data only shown through 2015 as Fannie Mae began consolidating the former Capital Markets
Group segment into the Single-Family and Multifamily segments in 2016, while Freddie Mac began doing so in 2021. 26
Losses Including Provisions Exceeded
Minimum Capital Levels
The losses in the GSEs’ guarantee business during the financial crisis, when
including $92bn of provisions, i.e. the accounting reserves for expected
losses, significantly exceeded their minimum capital requirements

Fully-Taxed Net Income and Minimum Capital for Single-Family Guarantee Segment ($ in Billions)

Fannie Mae
$25 Cumulative Losses $20 bn Freddie Mac
(Including Provisions)
2007-2011
$0
Minimum Capital
($25) Requirement
(45bps)
($50)

($75)

($100)

($125)

($150) $(138) bn

Source: Company filings and Pershing Square estimates.

Note: Fully-taxed net income based on a 35% tax rate to remove the initial negative impact of the DTA valuation allowance and the subsequent positive impact of its reversal.
Minimum capital requirement based on 45bps of average single-family guarantee portfolio during the period 2007 to 2011. 27
Actual Credit Losses Were Lower Excluding
Accounting Charges

The GSEs’ losses during the financial crisis were much lower when
calculated based on their actual credit losses, rather than provisions

Fully-Taxed Net Income for Single-Family Guarantee Segment ($ in Billions)

Cumulative Losses $20 bn

(Including Credit Losses)
2007-2011 Fannie Mae

Minimum Capital Freddie Mac

Requirement
(45bps)

$(46) bn

Source: Company filings and Pershing Square estimates.

Note: Fully-taxed net income based on actual credit losses rather than provision expenses. Fully-taxed net income based on a 35% tax rate to remove the initial negative
impact of the DTA valuation allowance and the subsequent positive impact of its reversal. Minimum capital requirement based on 45bps of average single-family guarantee
portfolio from 2007 to 2011. 28
Losses from Subprime & Alt-A Loans

A large portion of the credit losses in the GSEs’ guarantee business

during the financial crisis resulted from the small portion of subprime
and Alt-A loans in their portfolios, which they no longer guarantee
Fannie Mae Subprime & Alt-A Loans as % of Single-Family Guarantees and Credit Losses

50% 48%

41%
40%
34%

30%
29% 28%

20%
13%
10% 9%
10% 8%
6%

0%
2007 2008 2009 2010 2011
% of Guarantee Portfolio % of Credit Losses

The GSEs should never have guaranteed subprime and Alt-A loans, which are much
riskier than conventional 30-year, fixed-rate, prepayable mortgages
Source: Company filings.
Note: Fannie Mae used as an illustration, but Freddie Mac followed a similar trend. 29
Minimum Capital Nearly Enough for Core Portfolio Losses

We estimate that the GSEs’ minimum capital levels were nearly sufficient
to withstand their actual losses during the financial crisis, excluding the
large credit losses from subprime and Alt-A loans

Fully-Taxed Net Income for Single-Family Guarantee Segment ($ in Billions)

Cumulative Losses
(Excludes accounting provisions $20 bn
and Subprime & Alt-A losses)
2007-2011
Fannie Mae
Minimum Capital
Freddie Mac
Requirement
(45bps)
$(27) bn

Source: Company filings and Pershing Square estimates.

Note: Fully-taxed net income based on credit losses, excluding the elevated credit losses in the subprime and Alt-A loans and assumes credit losses for subprime and Alt-A
loans occurred at a similar rate as non-subprime and Alt-A loans. Assumes similar levels of subprime and Alt-A loans for Freddie Mac as for Fannie Mae. Fully-taxed net
income based on a 35% tax rate to remove the initial negative impact of the DTA valuation allowance and the subsequent positive impact of its reversal. Minimum capital
requirement based on 45bps of average single-family guarantee portfolio from 2007 to 2011. Actual accounting losses from 2007-2011 were $138bn due to (i) provisions of
$92bn and (ii) estimated subprime and Alt-A losses of $19bn. 30
Prior to the Great Financial Crisis, the GSEs Had
Two Distinct Lines of Business

Fannie and Freddie

Guarantees Fixed-Income Arbitrage (FIA)

(Ongoing: ~$7.6 trillion guarantees, (Wound-down: ~$1.6 trillion
of which 88% are single-family) assets at 2008 peak)(1)

 High-quality, low-risk  Low-quality, high-risk

 Serves a vital purpose for the  Did not serve a credible purpose
mortgage market for the mortgage market

(1) Fannie and Freddie today hold ~$180 billion of investment assets on balance sheet, a large portion of which is related to warehousing of mortgage loans for future MBS
issuances, as well as workouts of non-performing loans in prior MBS issuances. 31
Fixed-Income Arbitrage Business Model: Pre-GFC

The GSEs issued AAA-rated corporate debt to finance the purchase of

mortgage assets and earn a profit from the small spread between the
yield on their long-term assets and shorter-term debt. At times, FIA was
able to generate a high ROE due to significant leverage

Illustrative Fixed-Income Arbitrage Business ($ in Billions)

$100
$97.5

FIA relied on an
implicit government
Mortgage guarantee to access
Debt
Assets the capital markets
at a low cost

$2.5
Equity

Pre-Tax 4.5% (3.5)%

40%
Return Net investment spread: 1.0%

In effect, the GSEs took advantage of the government’s implied backing to enter a new, high-risk
business that was not consistent with their original mission

Note: Illustrative 2.5% equity based on pre-GFC minimum capital requirements for Fannie and Freddie’s on-balance sheet assets. 32
FIA Served No Credible Purpose for the Mortgage Market

“The Federal Reserve Board has been unable to find any

credible purpose for the huge balance sheets built by
Fannie and Freddie other than the creation of profit through
the exploitation of the market-granted subsidy. Fannie's and
Freddie's purchases of their own or each other's mortgage-
backed securities with their market-subsidized debt do not
contribute usefully to mortgage market liquidity, to the
enhancement of capital markets in the United States, or to
the lowering of mortgage rates for homeowners.”

- Alan Greenspan, 5/19/2005

Source: https://www.federalreserve.gov/boarddocs/speeches/2005/20050519/ 33
Warren Buffett’s Perspectives on FIA

“The portfolios are what really got them into the trouble. The
portfolios were the ways that the managements of Freddie
and Fannie tried to juice up the earnings, basically, because
the insurance guaranteed that they were given that mortgage.
I always thought that made a lot of sense. But the portfolio
operations enabled both of those entities to use, in effect,
government-related borrowing costs and sort of unlimited
credit, to set up the biggest hedge fund in the world...So the
portfolios are poison. They aren’t really needed to carry out
the function of Freddie and Fannie.”

- Warren Buffett, 9/8/2008

Source: CNBC interview. https://www.cnbc.com/2008/09/08/transcript-video-warren-buffett-tells-cnbc-treasury-did-exactly-the-right-thing-on-fanniefreddie.html 34

FIA Was Inherently Risky and Fragile

FIA was an inherently risky and fragile business

 Inherently complex business model

 Asset-intensive, low-return business

 High leverage needed to achieve a high ROE

 Required continuous access to capital

 Substantial interest rate and prepayment risk

 High liquidity risk

 Scale did not provide an inherent competitive advantage

 Extensive reliance on derivatives

35
The GSEs are No Longer in the FIA Business

The GSEs’ fixed-income arbitrage business has been wound down, and
the GSEs today hold $182bn of mortgage loans to support their core
guarantee business, well below caps set by Treasury

Mortgage-Related Investment Assets ($ in Billions)

$1,000 $952

$900

$800

$700

$600
Freddie Mac
$500 $450
Fannie Mae
$400

$300
$182
$200

$100

$0
2013 9/30/24 Current
Holdings Treasury Cap

Source: Company filings. 36

Conservatorship and the Net
Worth Sweep

37
Conservatorship

On Sept. 6, 2008, the government placed the GSEs into

conservatorship with the objective of returning them to normal
operations when their businesses stabilized

“Therefore, in order to restore the balance between safety and

soundness and mission, FHFA has placed Fannie Mae and Freddie
Mac into conservatorship. That is a statutory process designed to
stabilize a troubled institution with the objective of returning the
entities to normal business operations. FHFA will act as the
conservator to operate the Enterprises until they are stabilized.”
- James Lockhart, FHFA Director, 9/7/2008

38
Treasury Senior Preferred Stock Investment

On Sept. 7, 2008, Treasury committed to invest up to $100bn of senior

preferred stock in each of the GSEs through the Preferred Stock
Purchase Agreements (“PSPAs”). In 2009, Treasury raised its
commitment to $200bn each

Terms of Senior Preferred Stock

 $1bn initial liquidation preference
 Warrants for 79.9% of common stock
 Cumulative dividends at 10% cash rate or 12% paid-in-kind (PIK) rate

History Prior to the Net Worth Sweep

 The GSEs were unable to pay 10% cash dividends from 2008 to 2011 and used
proceeds from additional Treasury preferred stock investments to pay dividends
 It is unclear why Treasury did not allow the preferred stock to pay 12% PIK
dividends when the GSEs were unable to pay cash dividends
 In 2012, Fannie and Freddie became profitable enough to pay the 10% cash
dividend on Treasury’s preferred stock
39
The Net Worth Sweep

On Aug. 17, 2012, the Obama administration amended the terms of the
senior preferred stock (the “Net Worth Sweep”) to require the GSEs to
pay dividends equal to 100% of their earnings
Fannie and Freddie Quarterly Net Income Since 2011 ($ in Billions)
$60 $59

$50

$40 Net Worth Sweep

Announced
Fannie Mae $31
$30 Freddie Mac

$20

$8 $10 $9
$10 $6 $9
$5 $4 $5 $5
$1 Q2‘11 Q3‘11 $1 $3
$1
$3 $2 $3
$0
Q1‘11 Q4‘11 Q1‘12 Q2‘12 Q3‘12 Q4‘12 Q1‘13 Q2‘13 Q3‘13 Q4‘13
$(3) $(2)
($10) $(6) $(5) $(4) $(2)
Net Worth Sweep
Begins

The government announced the net worth sweep just after the GSEs returned to
profitability and were able to pay the cash dividends under the original agreement

Source: Company filings and reports. Net Income includes the reversal of the DTA valuation allowance for Fannie Mae in Q1 ’13 and for Freddie Mac in Q3 ’13. 40
Dividends Paid to Treasury Exceed Disbursements

The Treasury has earned an 11.6% IRR from the $301bn of dividends
received from the GSEs, ~$25bn more than what was owed under the
original 10% dividend rate
Disbursements Received and Dividends Paid ($ in Billions)
$350
$301
$300

$250
One-time draw due to
$200 accounting losses $191
caused by corporate
$150 $130 tax reform in Q4’17

$100
$60 $66

$50 $33 $40

$28 $23
$13 $16 $19 $16 $15 $14
$7 $4 $9
$0 $0 $0 $0 $0 $0 $0 $0
$0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
Disbursements Received Dividends Paid

The GSEs have not paid a dividend to Treasury since 2019, and have not drawn funds
since 2011 outside of one-time accounting losses from corporate tax reform in 2017

Source: Company filings. 41

GSEs Treated Differently Than Other Bailout Recipients

The government has already made more profit on the GSEs than all
other bailout investments combined
(1)
Government Government Net Profit Year
Company (2)
Investment ($bn) $bn % Exited

$182 $23 12% 2012

$50 ($11) (21%) 2013

$45 $12 27% 2011

$45 $4 9% 2010

$25 $2 7% 2009

$25 $2 9% 2010

$11 ($1) (12%) 2011

$191 $110 57% Current

Source: Company and government filings.

(1) Proceeds received from principal repayment, dividends, interest, and gains on sale of common stock and other securities less government investment.
42
(2) Year of last repayment or last sale of government-owned securities.
Capital Retention Began During Trump’s First Term

In the first Trump administration, Treasury Secretary Mnuchin made

meaningful progress towards ending the conservatorships by pausing
the net worth sweep and allowing the GSEs to begin recapitalizing
themselves by retaining earnings
GSEs: GAAP Net Worth ($ in Billions)

$100 $94
Fannie Mae
Freddie Mac
1/14/21: Treasury $78
$80 9/27/19: Treasury
increases capital retention suspends net worth
to $25bn at Fannie Mae sweep until the GSEs
$60 $59
$60 and $20bn at Freddie Mac are fully recapitalized
$47 $48
12/21/17: Treasury $37
$40
grants permission for
each GSE to retain up $28
$25
to $3bn in capital
$20 $13 $15 $16
$7 $9 $10 $9
$4 $3 $6 $5 $6 $4
$4 $3
$0
($0)
($4)

($20)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024E

Source: Company filings. Includes deferred tax assets, which as of 9/30/24 were $11bn at Fannie Mae and $5bn at Freddie Mac. 43
January 2, 2025 PSPA Amendment

On January 2, 2025, the Treasury Secretary and FHFA Director of the

outgoing administration further amended the PSPAs

 The amendment restored Treasury’s right to consent to a release from

conservatorship, which it had previously from 2008 to 2021
 Practically, Treasury always had this right, as exiting conservatorship is not
possible without addressing Treasury’s Senior Preferred Stock

 Includes a new commitment to conduct a market impact assessment

prior to releasing the GSEs

 We do not believe this amendment made any substantive changes to the

status quo
 Did not affect the GSEs’ capital retention or the terms of any of their securities

 Press release acknowledged “the eventual release of the GSEs from

conservatorship”

Treasury Secretary Scott Bessent and President Trump’s FHFA Director will
be free to modify the terms of the PSPAs as they see fit

44
A Framework for
Ending Conservatorship
Unfinished Business of the First Trump
Administration

“My Administration would have

also sold the government’s
common stock in these
companies at a huge profit and
fully privatized the companies.
The idea that the government can
steal money from its citizens is
socialism and is a travesty
brought to you by the
Obama/Biden administration. My
Administration was denied the
time it needed to fix the problem
because of the unconstitutional
restriction on firing Mel Watt.”
- Donald J. Trump

46
Fannie and Freddie: Situation Overview

We believe releasing the GSEs from conservatorship could generate ~$300

billion for taxpayers, while maintaining the same availability and affordability
of mortgage financing that exists today with the GSEs in conservatorship

 The 2008 conservatorship was always intended to be temporary

 Meaningful progress was made during President Trump’s first term
 Net worth sweep suspended by Secretary Mnuchin in January 2021
 The GSEs now hold $131bn of capital, up from effectively zero prior to President
Trump, due to earnings retention facilitated by this suspension
 The Biden administration has taken no meaningful action on the GSEs
 We believe there is a clear path for Fannie and Freddie to become fully
recapitalized and exit conservatorship within the next two years
 Treasury’s warrants are a hidden asset on the government balance sheet that
we estimate could be worth more than $300bn over time
 Releasing the GSEs from conservatorship does not require any action by
Congress. Fannie and Freddie can each exit conservatorship as soon as they
receive approvals from Treasury and FHFA

47
Key Objectives in Ending Conservatorship

Key Objectives:

 Maintain the availability and affordability of the 30-year, fixed-rate,

prepayable mortgage

 Protect taxpayers from bearing the cost of a housing downturn

 Minimize government involvement in the housing finance system

 Maximize probability of successful private capital raise

 Maximize taxpayers’ profits on Treasury’s investment in the GSEs

48
Our Framework for Ending Conservatorship

Ending the conservatorship of Fannie and Freddie will maintain the

widespread availability and affordability of the 30-year, fixed-rate,
prepayable mortgage while providing substantial profit to taxpayers

Key steps to ending conservatorship:

1 Set appropriate capital requirements


2 Limit government-granted benefits



3 Develop market-based compensation and governance policies



4 Clarify nature of ongoing government backstop



With capital levels appropriate for pure mortgage guarantors/insurers, the GSEs
can be a simple, low-risk, long-term solution for housing finance

49
FHFA’s capital rule, finalized in 2020 and
amended in 2022 and 2023, increased the
capital requirements for the GSEs’
guarantee business from an inadequate
pre-crisis level of 0.45% to an overly
conservative, impractical level of 4%

50
1 Set Appropriate Capital Requirements

We do not believe bank standards are appropriate for the GSEs’

guarantee business, which carries significantly fewer risks

Reformed
Banks
GSEs
Traditional Mortgages

Credit Risk Medium Low

Interest Rate Risk  

Liquidity Risk  
Jumbo & Alternative
Mortgage Products  
Minimum Common
3.5% – 4.7%(1) ?
Equity Requirement

Source: Company filings and Pershing Square estimates.

(1) Equity requirements for banks based on 50% risk-weighting for residential mortgage assets applied to Tier 1 common equity ratio. On the low end, 7% is the minimum Tier 1
capital ratio required under Basel III. On the high end, 9.4% is the average required Tier 1 capital ratio of the 32 largest banks in the United States as of October 2024. 51
1 Set Appropriate Capital Requirements (Cont.)

The GSEs are credit insurance companies, and therefore insurance

regulatory concepts are more relevant than bank standards in
determining GSE capital requirements

“Insurance regulation is also more likely to see a stream of future

premiums as a source of loss-absorbing capacity, and hence
looks to be sure that pricing is sufficient to cover losses under all
but the most catastrophic scenarios.

“In MBA’s proposal, with the Guarantors having only a minimal

investment portfolio holding assets of short duration, insurance
regulatory concepts may become more applicable than bank
regulatory concepts.”

- Mortgage Bankers Association, 4/20/2017

Unlike banks, the GSEs face low credit risk, do not take interest rate or liquidity risk,
and do not guarantee jumbo and alternative mortgage products

Source: Mortgage Bankers Association white paper titled “GSE Reform: Creating a Sustainable, More Vibrant Secondary Mortgage Market”, April 2017. 52
1 Set Appropriate Capital Requirements (Cont.)

Private mortgage insurance is a very high-risk business, and is also an

inappropriate benchmark when setting capital levels for the GSEs

Private Mortgage Reformed

Insurers (“PMIs”) GSEs
Traditional Mortgages

Credit Risk High Low

High LTV  
Guarantee 80-100% LTV
Tranche  
Jumbo & Alternative
Mortgage Products  
Minimum Common
5.6%(1) ?
Equity Requirement

Source: Company filings and Pershing Square estimates.

(1) Private mortgage insurers based on the minimum 5.6% of performing primary adjusted risk-in-force ratio required by the GSEs’ September 2018 Private Mortgage Insurer
Eligibility Requirements (PMIERs). 53
1 Set Appropriate Capital Requirements (Cont.)

The GSEs require significantly less capital than the PMIs because their
guarantees are much safer

Illustrative Mortgage Guarantee Coverage as % of LTV

100%
PMIs
80%  Coverage: 80-100% LTV
 Typical Severity: 100%
 Capital Ratio: 5.6%(1)

GSEs
 Coverage: 0-80% LTV
 Typical Severity: ~30%(2)
 Capital Ratio: ?
0%

Source: Company filings and Pershing Square estimates.

(1) Capital ratio for PMIs based on based on the minimum 5.6% of performing primary adjusted risk-in-force ratio required by the GSEs’ September 2018 Private Mortgage
Insurer Eligibility Requirements (PMIERs).
(2) Typical severity based on Urban Institute’s analysis of GSE loans originated from 1994-2022. 54
1 Set Appropriate Capital Requirements (Cont.)

We do not believe the GSEs can earn an adequate return on capital to

attract sustainable private investment at a 4% capital requirement
unless g-fees are raised substantially

“To generate the large amount of private capital required to fund

such a system, the Guarantor business model and expected
returns through the cycle need to be attractive. That is, private
investors in the Guarantors would have a reasonable expectation
of a market rate of return on a risk-adjusted basis. To achieve this
objective, investors would want to ensure that capital
requirements are not too high, regulation and supervision is not
too expensive, credit standards are sound and efforts to make
housing more affordable do not impinge significantly on returns.”

- Mortgage Bankers Association, 4/20/2017

Source: Mortgage Bankers Association white paper titled “GSE Reform: Creating a Sustainable, More Vibrant Secondary Mortgage Market”, April 2017. 55
1 Set Appropriate Capital Requirements (Cont.)

The current 4% capital requirement is too high and would increase the
cost of mortgage financing at a time when home affordability is at
record lows and mortgage rates are at multiyear highs
Fannie Mae Illustrative Return on Equity for New Single-Family MBS
Same ROE
as at 2.5% Higher ROE Required by Investors
Capital due to Higher Capital Needs
G-Fee Required at 4% Capital (bps) 83.0 86.0 89.0 92.0 95.0
vs. Current: 65.0 18.0 21.0 24.0 27.0 30.0
Less:
Normalized Credit Losses (bps) (10.0) (10.0) (10.0) (10.0) (10.0)
TCCA Fee (bps) (10.0) (10.0) (10.0) (10.0) (10.0)
Illustrative PSPA Commitment Fee (1.3) (1.3) (1.3) (1.3) (1.3)
Administrative & Other Expenses, net (bps) (13.7) (13.7) (13.7) (13.7) (13.7)
Pretax Income before Capital (bps) 48.0 51.0 54.0 57.0 60.0
Plus: Interest Income on Capital at 3% (bps) 12.0 12.0 12.0 12.0 12.0
Less: Income Taxes at 21.0% (bps) (12.6) (13.2) (13.9) (14.5) (15.1)
Net Income on New MBS (bps) 47.4 49.8 52.1 54.5 56.9
Required Capital Held 4.0% 4.0% 4.0% 4.0% 4.0%
Return on Equity for New MBS 11.9% 12.4% 13.0% 13.6% 14.2%

4% capital would require ~$270 billion to support the single-family guarantee business
alone, >2x the capital held by both entities today. This would tie up ~$100bn+ of wasted
capital that could be better deployed in other US businesses
56
1 Set Appropriate Capital Requirements (Cont.)

Potential increases in g-fees would cost the typical homebuyer

significantly more in interest over the life of his or her mortgage

G-Fee Increase: Impact to Homebuyer

Illustrative ROE Required by Investors
11.9% 12.4% 13.0% 13.6% 14.2%
Avg. U.S. Home Sales Price (Q3'24) $501,100 $501,100 $501,100 $501,100 $501,100
Mortgage as % of Home Price 80% 80% 80% 80% 80%
Implied Mortgage Loan Amount $400,880 $400,880 $400,880 $400,880 $400,880
Avg. Mortgage Rate - 30-Year Fixed 6.93% 6.93% 6.93% 6.93% 6.93%
Implied Cumulative Interest Paid $569,948 $572,871 $575,796 $578,725 $581,658
Increase in G-Fees at 4.0% Capital 0.18% 0.21% 0.24% 0.27% 0.30%
Implied Incremental Interest $17,460 $20,382 $23,308 $26,237 $29,170

A post-conservatorship capital standard of 4% would in effect be a tax on

American homebuyers to fund overly capitalized balance sheets at the GSEs

Note: Average U.S. single-family home sales price as per Federal Reserve Bank of St. Louis for the third quarter of 2024. National average mortgage rate as per Freddie
Mac for the weekly average as of January 9, 2025. 57
1 Set Appropriate Capital Requirements (Cont.)

2.5% of equity capital is appropriate when benchmarked against the required

capital levels for banks and private mortgage insurers
Reformed Private Mortgage
Banks
GSEs Insurers (“PMIs”)
Traditional Mortgages

Credit Risk Low Medium High

Interest Rate Risk   

Liquidity Risk   
High LTV   
Guarantee 80-100% LTV
Tranche   
Jumbo & Alternative
Mortgage Products   
Minimum Common
2.5% 3.5% – 4.7%(1) 5.6%(2)
Equity Requirement

The GSEs’ guarantee business should have a lower capital ratio than banks
and PMIs to reflect the lower risks they incur
Source: Company filings and Pershing Square estimates.
(1) Equity requirements for banks based on 50% risk-weighting for residential mortgage assets applied to Tier 1 common equity ratio. On the low end, 7% is the minimum Tier 1 capital ratio required under
Basel III. On the high end, 9.4% is the average required Tier 1 capital ratio of the 32 largest banks in the United States as of October 2024.
(2) Private mortgage insurers based on the minimum 5.6% of performing primary adjusted risk-in-force ratio required by the GSEs’ September 2018 Private Mortgage Insurer Eligibility Requirements (PMIERs).
58
1 Set Appropriate Capital Requirements (Cont.)

2.5% of equity capital, or ~$170 billion, to support ~$6.7 trillion of single-

family guarantees would provide the GSEs with a fortress balance sheet
with more than 5.5 times as much capital as historical levels

Equity Requirement for Single-Family Guarantee Business ($ in billions)

$200 $168
$150
$100
$50 $30

$0
($50) ($27)
($46)
($100)
Cumulative Cumulative Pre-GFC Capital Proposed Capital
Credit Losses Credit Losses Ratio: 0.45% Ratio: 2.5%
2007-2011 (Excl. Subprime
& Alt-A)
2007-2011

2.5% of equity capital would amount to 6.2 times the cumulative losses in the GSEs’
single-family guarantee business during the financial crisis, based on our estimates of
actual credit losses excluding the elevated losses from subprime and Alt-A MBS

Source: Company filings and Pershing Square estimates.

Note: Capital ratios are based on the combined Fannie and Freddie 2024 single-family guarantee portfolio of $6.7 trillion. Adjusted Cumulative Losses (2007-2011) represents
Fannie and Freddie’s cumulative fully-taxed net losses from 2007-2011, based on actual credit losses and excluding the elevated level of losses from subprime and Alt-A MBS. 59
1 Set Appropriate Capital Requirements (Cont.)

Analysts concur with our recommendation for a minimum capital

requirement of 2.5%

“While GSE revenues and earnings are significantly higher now vs

pre-GFC levels driven by much higher guarantee fees and
meaningfully larger guarantee portfolios, required minimum
capital levels have increased far more meaningfully, resulting in a
sharp decline in run-rate ROEs. We believe that the only realistic
way to solve for this is to remove the stability buffer and take the
minimum capital level back to 2.5%. The other alternative is to
increase guarantee fees, but we estimate that the increases would
have to be in the 20-25 bp range (from the current 65 bp level),
which is likely to be politically unacceptable since it would
increase mortgage rates by an equivalent amount.”

- Keefe, Bruyette & Woods (emphasis added), 1/5/2025

60
1 Set Appropriate Capital Requirements (Cont.)
The GSEs’ enormous earnings power adds a substantial additional layer
of protection to a fortress balance sheet

The GSEs’ balance sheets do not reflect the

~$32bn in annual net revenue they will receive
from g-fees on their existing ~$7 trillion of
outstanding single-family MBS. This recurring,
long-term cash flow stream has allowed the
GSEs to successfully recapitalize after the
suspension of the net worth sweep

61
1 Set Appropriate Capital Requirements (Cont.)
The GSEs’ balance sheet quality is enhanced by their contractual future
revenue, as well as their ability to gain share in crisis

 While they do not count towards capital, future contractual guarantee

fees significantly enhance balance sheet strength
 Fannie and Freddie generated net single-family g-fees of $32bn in 2024(1)

 The GSEs are contractually entitled to collect this revenue from the existing
The
book ofGSEs’
businessbalance sheets
until the underlying do not
mortgages reflect
are fully repaid
 the ~$30bn
We estimate futurein annual
g-fees revenue
on the existing they
book are worthwill
~$101bn today(2)
receive from g-fees on their ~$5 trillion of
 The ability to write new business in a crisis provides further protection
outstanding MBS
 During a housing crisis, losses on the existing book of business are partially
offset by higher market share and superior returns on new business
 Other participants pull back during a crisis, while lending standards tighten

 While difficult to quantify, we estimate this unique ability to write new business
during a crisis is worth ~$17bn on a present value basis(3)

(1) Represents estimated guarantee fee revenue less TCCA fees, which are a pass-through expense.
(2) Assumes average portfolio turnover of 14%, net g-fees in-line with 2024 levels of 48bps, and a discount rate equal to the current 30-year MBS yield of 6.1%.
(3) Assumes a 23% increase in the size of the single-family guarantee portfolio due to market share gains, similar to what occurred during the Global Financial Crisis,
average portfolio turnover of 14%, net g-fees on new business in-line with 2024 levels of 55bps, and a discount rate equal to the GSEs’ est. cost of equity capital of 8.0%. 62
1 Set Appropriate Capital Requirements (Cont.)
The GSEs’ total Claims Paying Resources includes their equity capital,
contractual g-fees on $6.7 trillion of assets, and ability to gain market
share in a crisis
Proposed Capital and Claims Paying Resources for Single-Family Guarantee Business ($bn)

$300 $286
10.6x Ability to Write
New Business
Existing in a Crisis =
Book $17bn (0.3%)
G-Fees =
$200 $101bn
$168 (1.5%)

Equity
$100
Capital =
6.2x $168bn
$46 (2.5%)
$27

$0
Cumulative Cumulative Proposed Claims
Credit Losses Credit Losses Capital Paying
2007-2011 (Excl. Subprime Ratio: 2.5% Resources: 4.3%
& Alt-A)
2007-2011

2.5% of equity capital would imply Claims Paying Resources of $286bn, over 10 times the
cumulative losses in the GSEs’ single-family guarantee business during the financial crisis,
based on our estimates of actual credit losses excluding subprime and Alt-A MBS
63
2 Limit Government-Granted Benefits

Government-granted benefits that do not serve a vital purpose for the

mortgage market should be eliminated

 Exemption from SEC registration of debt and MBS

 UST line of credit that authorizes up to $2.25bn of GSE obligations

 Exemption of GSE securities from Volcker rule (keep for GSE MBS only)

 Lack of exposure limits for banks investing in Fannie and Freddie debt
securities (keep for GSE MBS only)

 Exemption from FSOC (Financial Stability Oversight Council) review for

SIFI status(1)

(1) The proposed 2.5% capital ratio would be inclusive of any additional capital buffer required due to SIFI designation. Regardless of SIFI status, we believe required capital
levels should be set at a level that balances the need to minimize the likelihood that the government is called upon for funds in a housing downturn, enables the GSEs to
earn adequate returns to attract sufficient private capital, and keeps mortgage credit affordable and widely available. 64
2 Limit Government-Granted Benefits (Cont.)

Benefits that we believe should be preserved:

 20% risk weighting for GSE MBS (vs. 50% for private label MBS)
 Appropriate in light of lower risk and higher liquidity of agency MBS; also raises
demand for agency MBS and thus lowers mortgage costs

 GSE MBS eligible for purchase by the Federal Reserve

 Raises demand for MBS and thus lowers mortgage costs

 GSE MBS eligible as collateral for public deposits and for loans from
Federal Reserve Banks and Federal Home Loan Banks
 Smaller lenders utilize Federal Home Loan Banks extensively

 No requirement for information disclosure underlying securities ratings

 Facilitates the TBA market by making different MBS issuances more liquid and
fungible

65
3 Develop Market-Based Compensation & Governance

Compensation for Key Executives

 Salaries based on prevailing market rates

 Bonuses in the form of restricted stock with long-term vesting

 Compensation targets emphasize capital strength and operational risk

management and controls, in addition to standard financial targets

 Current pay limits lead to high leadership turnover, with Fannie

averaging a new CEO every three years and Freddie every two years
since conservatorship began in September 2008

Governance

 World-class, independent board of directors

 Compensation based on restricted stock with long-term vesting

66
4 Clarify Nature of Government Backstop

We do not believe that a direct, explicit government guarantee of Fannie and

Freddie’s MBS is necessary, feasible, or desirable

 There are several complications with an explicit MBS guarantee

 Would likely require the U.S. government to consolidate the $7.6tn MBS of Fannie
and Freddie, which would increase the national debt by 20%
 Disruption to the Treasury market, as the MBS could be viewed as a secured US
government obligation, while Treasuries could be viewed as unsecured
 Would require an act of Congress

 We do, however, believe it is important to achieve several objectives

 Clarify the nature of the relationship between the GSEs and the government
 Ensure fair compensation to taxpayers in the extremely unlikely event that
government support is required in a future financial crisis
 Provide confidence to the MBS market that a government backstop is in place

We believe there is an elegant solution to achieve these objectives through

administrative action, utilizing authorities already granted by Congress

67
4 Clarify Nature of Government Backstop (Cont.)

The existing PSPAs should be modified to act as a government

backstop, providing the same benefits as an explicit guarantee without
the negative consequences

 Treasury’s total funding commitment under the PSPAs is $445bn(1)

 We believe the full $445bn would be available for future draws if the
Senior Preferred Stock is deemed repaid

 The size of Treasury’s funding commitment makes it akin to an explicit

guarantee from the perspective of an MBS investor
 Additional ~5.5% of GSE assets & guarantees after 2.5% first-loss private capital

 Treasury would be paid a commitment fee in exchange for this support

 Priced as super-senior reinsurance that would only be drawn upon in the unlikely
event the GSEs’ private capital is fully exhausted in a catastrophic financial crisis

 Terms of the Senior Preferred Stock would need to be modified

 Private capital raise is not feasible if Treasury can purchase a senior security with
onerous terms at any time, which the GSEs have no ability to repay

(1) Consists of total draws of $119.8bn at Fannie and $71.6bn at Freddie, and remaining funding of $113.9bn at Fannie and $140.2bn at Freddie per public filings. 68
4 Clarify Nature of Government Backstop (Cont.)

Losses would need to exceed $600bn before both first-loss private capital and
PSPA funding would be extinguished, or ~23x adjusted cumulative losses in the
single-family guarantee segment during the Great Financial Crisis (i.e. 2007-2011)

Financial Crisis Losses vs. Potential New Capital Framework ($ in Billions)

PSPA Funding Commitment $613

Private Capital at 2.5% for SFG Business

$445

$138

$168
$27

SFG Adjusted Cumulative SFG Cumulative Losses Private Capital +

Losses (2007-2011)(1) (2007-2011)(2) PSPA Funding

Source: Company filings and Pershing Square estimates.

(1) Fully-taxed net income of the single-family guarantee segments based on credit losses, excluding the elevated credit losses in the subprime and Alt-A loans and assumes
credit losses for subprime and Alt-A loans occurred at a similar rate as non-subprime and Alt-A loans. Assumes similar levels of subprime and Alt-A loans for Freddie Mac as
for Fannie Mae. Fully-taxed net income based on a 35% tax rate to remove the initial negative impact of the DTA valuation allowance and the subsequent positive impact of its
reversal.
(2) Actual accounting losses in the single-family guarantee segments from 2007-2011 were $138bn, due to (i) provisions of $92bn and (ii) estimated subprime and Alt-A losses
of $19bn. 69
4 Clarify Nature of Government Backstop (Cont.)

A major ratings agency has recently indicated that exiting

conservatorship with the PSPAs in place would be credit neutral

“Current ratings reflect support provided by the U.S. Treasury

Department under the Senior Preferred Stock Purchase
Agreements (PSPAs) and Fitch's view of the GSEs’ policy role in
the U.S. housing market. The PSPAs require the U.S. Treasury to
inject funds if either GSE's net worth drops below zero, up to the
agreement limits. As of 3Q24, aggregate availability under the
PSPAs exceeded $250 billion, with the housing GSEs’ combined
net worth at $147 billion, currently indicating strong U.S.
government backing. Fitch expects the incoming Trump
administration to potentially explore options for taking the GSEs
out of conservatorship. If the GSEs were to exit conservatorship
while maintaining the PSPAs or similar support, their ratings
could remain aligned with the U.S. sovereign rating.”

- Fitch Ratings, 1/8/25 (emphasis added)

Source: https://www.fitchratings.com/research/non-bank-financial-institutions/fannie-freddie-conservatorship-exit-would-not-be-immediate-ratings-catalyst-08-01-2025. 70
4 Clarify Nature of Government Backstop (Cont.)

Probability of a draw, credit quality, and impact on mortgage costs are

important factors to consider when setting the PSPA commitment fee

 Substantial first-loss private capital makes a draw highly unlikely

 While there is no perfect comparable, we believe a commitment fee of

~25 basis points is conservative in light of available market benchmarks:

Revolver Undrawn Fees(1) Single-Name CDS Pricing(2)

Credit Spread
Credit Rating Undrawn Fee
Borrower Rating (bps)
≥AA- or Aa3 0.04%
Berkshire Hathaway AA / Aa2 13.6
A+ or A1 0.05%
National Rural Utilities Coop. A- / A2 20.4
A or A2 0.07%
Northrop Grumman BBB+ / Baa1 22.8
A- or A3 0.09%
Union Pacific A- / A3 22.9
BBB+ or Baa1 0.11%
Johnson & Johnson AAA / Aaa 23.1
BBB or Baa2 0.12%
BBB- or Baa3 0.15%

If the PSPA commitment fee is too onerous, g-fees and mortgage costs
would have to increase to allow the GSEs to earn an appropriate ROE
(1) Average commitment fee grid for multiyear credit agreements signed in 2023 or 2024 by borrowers with at least an A- rating and a market cap of at least $100bn.
(2) CDS spread for five tightest names in the Markit CDX North America Investment Grade Index as of January 10, 2025. 71
Illustrative GSE Restructuring

72
Illustrative GSE Restructuring: Overview

We believe a restructuring of Fannie and Freddie should occur in three

consecutive phases

1. Cleanup of existing capital structure

 US Treasury Senior Preferred deemed repaid following recoupment of principal
plus an annualized return of 11.6%
 Existing PSPAs amended to serve as backstop in exchange for commitment fee
 US Treasury retains warrants for 79.9% of common stock
 Existing junior preferred either left outstanding or converted to common on a
negotiated basis

2. New private capital raises

 “Re-IPO” of Fannie Mae by year-end 2026 to raise ~$5bn in common stock
 “Re-IPO” of Freddie Mac by year-end 2027 to raise ~$15bn in common stock

3. Monetization of U.S. Treasury stake once entities are fully capitalized

 UST sells down its common stock stakes over the five years after each IPO
 Substantial common dividends paid to US Treasury during ownership periods
73
UST Preferred has Been Repaid

Treasury has now recouped its total cash invested plus ~$25bn in excess of
what would have been owed under the original 10% dividend rate

Fannie Freddie Total GSEs

Dividends for 10% Annualized Return $301
Excess Dividends $25
11.6%
cash
IRR

$193
$181
11.2%
cash $13
IRR
$121 12.0% $120 $276
cash
$12
IRR
$169 $73

$108

Draws from UST & Total Dividend Draws from UST & Total Dividend Draws from UST & Total Dividend
Original LP ($bn) Payments ($bn) Original LP ($bn) Payments ($bn) Original LP ($bn) Payments ($bn)

Source: Company filings and Pershing Square estimates. Original liquidation preference was $1 billion for each entity. 74
UST Preferred has Been Repaid (Cont.)

Former Trump administration officials have acknowledged that

Treasury’s Senior Preferred Stock has been repaid with interest

“So it’s an 11.5% moment [the IRR on the Senior Preferred]. And it
just shows that, you know, that there is an opportunity here also
to protect the taxpayer. The taxpayer has actually been – in some
ways, in many ways, repaid from the bailout of Fannie and
Freddie. We gotta kind of turn the page and fix it to move on.”

- Craig Phillips, Counselor to the US Treasury Secretary

from 2017 to 2019, in May 16, 2019 interview

Source: https://www.youtube.com/watch?v=ZJUB5-pBV08. 75
The GSEs Have Paid an Extra $25bn to Treasury

If the $25bn of excess payments were returned to Fannie and Freddie,

Fannie would not need to raise any private capital, while Freddie’s capital
raise would be much smaller
Fannie Capitalization Freddie Capitalization
at 12/31/26 at 12/31/27
Private Capital
Credit for Raise
Excess $5bn
Payments Credit for
$13bn Excess
Payments
Retained $12bn
Earnings in
2025-2026 Estimated
Estimated
$28bn Retained Capital at
Capital at
Earnings in 12/31/24
12/31/24
2025-2027 $54bn
$83bn
$30bn

Assets & Guarantees ~$4,650bn ~$4,050bn

Total Capital $124bn $102bn
Capital Ratio 2.7% 2.5%

We do not, however, assume that the $25bn of excess payments are returned to
Fannie and Freddie in our analysis
76
Source: Company filings and Pershing Square estimates.
Pro Forma Capitalization: Fannie Mae

Given its current capital position, Fannie Mae should be ready to exit
conservatorship by year-end 2026, and will only need to raise ~$5bn

12/31/24 Estimated 12/31/26 Pro Forma

Estimated Capital at 12/31/24(1)
$116bn
Retained Earnings in 2025-2026 $5bn
Private Capital Raise
$28bn
$83bn

$83bn $83bn

Assets & Guarantees ~$4,450bn ~$4,650bn

Capital Ratio 1.9% 2.5%

(1) Calculated as GAAP stockholders’ equity less deferred tax assets, net, as of 9/30/24, plus projected Q4’24 comprehensive income per Pershing Square estimates. 77
Common Equity Bridge: Fannie Mae

The GSE restructuring plan enables Fannie to achieve the capital level
required to exit conservatorship by year-end 2026

Common Equity Bridge – Fannie Mae ($bn)

$116

$5 $97 $19

$121

$32

($60)

9/30/24 GAAP (+) Q4'24E-2026E (+) UST Senior (+) Re-IPO PF 12/31/26E (+) Conversion of PF 12/31/26E
Common Comprehensive Preferred Stock Proceeds(1) Common Existing Junior Common
Equity less DTAs Income Deemed Repaid Equity - Existing Preferred to Equity - Existing
Junior Preferred Common Equity Junior Preferred
Left Outstanding Converted to
Common

Source: Company filings and Pershing Square estimates.

(1) Assumes underwriting fees and commissions of 50bps. Treasury’s $18bn secondary sale of AIG shares in September 2012 included an underwriting spread of 37.5bps. 78
Pro Forma Capitalization: Freddie Mac

Following several years of robust growth in its guarantee book, Freddie

Mac requires a larger capital raise of ~$15bn

12/31/24 Estimated 12/31/27 Pro Forma

(1)
Estimated Capital at 12/31/24
Retained Earnings in 2025-2027
Private Capital Raise $99bn

$15bn

$30bn
$54bn

$54bn $54bn

Assets & Guarantees ~$3,750bn ~$4,050bn

Capital Ratio 1.4% 2.5%

(1) Calculated as GAAP stockholders’ equity less deferred tax assets, net, as of 9/30/24, plus projected Q4’24 comprehensive income per Pershing Square estimates. 79
Common Equity Bridge: Freddie Mac

The GSE restructuring plan enables Freddie to achieve the capital level
required to exit conservatorship by year-end 2027

Common Equity Bridge – Freddie Mac ($bn)

$99
$85 $14
$15

$73

$33

($35)

9/30/24 GAAP (+) Q4'24E-2027E (+) UST Senior (+) Re-IPO PF 12/31/27E (+) Conversion of PF 12/31/27E
Common Comprehensive Preferred Stock Proceeds(1) Common Existing Junior Common
Equity less DTAs Income Deemed Repaid Equity - Existing Preferred to Equity - Existing
Junior Preferred Common Equity Junior Preferred
Left Outstanding Converted to
Common

Source: Company filings and Pershing Square estimates.

(1) Assumes underwriting fees and commissions of 50bps. Treasury’s $18bn secondary sale of AIG shares in September 2012 included an underwriting spread of 37.5bps. 80
Cleanup Existing Capital Structure: Junior Preferred

We believe the existing junior preferred can be left outstanding,

refinanced, or converted to common on a negotiated basis

 Non-cumulative, perpetual security

 No dividends in arrears for 2008 through present timeframe
 Future dividends not payable in a given year unless common dividends
are also paid

 Can potentially be converted to common stock on a negotiated basis

 Maximum contractual recovery of par value; actual recovery may be
slightly higher if converted to common stock
 Opportunity to ensure all classes of stock are supportive of the
restructuring

 We have assumed that the existing junior preferred is converted to

common at the IPO price of each entity for modeling purposes

81
New Private Capital Raises

We estimate that Fannie Mae can be fully recapitalized by year-end 2026,

while Freddie Mac can be fully recapitalized one year later

Total Capital Held at Fannie and Freddie ($bn)

$5bn
IPO
$15bn
Fannie Freddie $128
$120
IPO $124
$116
$104 $107
$97 $99

$83
$74
$64
$54

12/31/24E 12/31/25E 12/31/26E 12/31/27E 12/31/28E 12/31/29E

FNMA IPO FMCC IPO
Memo: % of Adjusted Total Assets
Fannie 1.9% 2.1% 2.5% 2.5% 2.5% 2.6%
Freddie 1.4% 1.7% 1.9% 2.5% 2.5% 2.5%

Source: Company filings and Pershing Square estimates. 82

Timing of Private Capital Raises

We believe there are significant benefits to executing Fannie’s smaller

IPO first, followed by Freddie’s larger IPO approximately one year later

 Fannie’s $5bn IPO is modestly sized for an entity of its scale

 Allows the market to observe one entity operating post-privatization

while another remains in conservatorship

 Provides time for investors and research analysts to familiarize

themselves with the reformed GSE business model

 Smaller IPOs are easier to execute, particularly for companies without

public trading “comps”

 Enables Freddie to apply any learnings from Fannie’s IPO to its own,
larger capital raise

83
Fannie and Freddie’s IPOs are Both Executable
Fannie’s $5bn IPO is readily achievable given its scale and return profile.
Freddie’s larger IPO will benefit from the learnings from Fannie’s capital raise

Company Proceeds Year of IPO Year Founded

$29bn 2019 1933

$25bn 2014 1999

(Telecom)
$24bn 2018 1984
$21bn 2010 1919
$20bn 2008 1958
$18bn 2010 1908
$18bn 1998 1952
$17bn 1999 1962
$16bn 2007 1984

$16bn 2012 2004

$15bn 2027 1970
$5bn 2026 1938
Source: Bloomberg. The companies shown comprise the largest global IPOs in the last 50 years.
84
Note: Proceeds include overallotment. General Motors represents the IPO of GM Motors Co. in 2010.
Key Modeling Assumptions

We have made several illustrative modeling assumptions to estimate the

long-term earnings power of the GSEs

 Single-Family Guarantee Business

 G-fees of 65bps, in-line with latest pricing of 64bps for FNMA and 67bps for FMCC
 FHFA as regulator should have the ability to adjust the guarantee fee level over time
to ensure the entities are earning an appropriate return on capital
 Market shares for each entity consistent with current levels
 Commitment fee of 25bps per annum on the total undrawn PSPA funding commitments
 Interest rate on drawn amounts can be set materially higher
 Net credit losses and G&A expenses in-line with long-term historical levels

 Investment assets growth of 2%, in-line with single-family guarantee book

 Solely utilized for temporary warehousing of mortgages prior to MBS issuances, and
buyouts of non-performing loans from MBS trusts

 Multifamily growth and economics in-line with recent history

 Payout 90% of net income as dividends after 2.5% capital threshold

85
Illustrative Financial Projections: Fannie Mae

We believe a low-double-digit return on capital balances the GSEs’

utility-like status with the need to deliver a market return to investors

FNMA Illustrative Financial Projections

($ in millions, except per share data) 2027E 2028E 2029E 2030E 2031E 2035E
Single-Family Guarantees ($bn) $3,874 $3,951 $4,030 $4,111 $4,193 $4,539
Growth 2% 2% 2% 2% 2% 2%
Avg. Portfolio G-Fee (bps) 60 61 61 62 63 65
TCCA Fees (bps) (10) (10) (10) (10) (10) (10)
Net Credit Losses (bps) (8) (10) (10) (10) (10) (10)
G&A & Net Other Expenses (bps) (14) (14) (14) (14) (14) (14)
PSPA Commitment Fee (bps) (2) (1) (1) (1) (1) (1)
Single-Family Guarantee Pretax Income $10,281 $10,053 $10,617 $11,200 $11,801 $13,642
bps 27 25 26 27 28 30
Investments & Multifamily Guarantees ($bn) $648 $677 $709 $741 $769 $891
Investments & Multifamily Pretax Income $6,868 $7,106 $7,353 $7,611 $7,841 $8,840
bps 106 105 104 103 102 99
Plus: Income on Retained Capital (3.0% Rate) 1,002 1,119 1,239 1,363 1,491 2,030
Less: Taxes at 21% (3,812) (3,838) (4,034) (4,236) (4,438) (5,148)
Net Income to Common $14,340 $14,439 $15,175 $15,937 $16,695 $19,365
bps 32 31 32 33 34 36
Diluted Shares Outstanding 6,520 6,520 6,520 6,520 6,520 6,520
Diluted EPS $2.20 $2.21 $2.33 $2.44 $2.56 $2.97
Growth 0% 1% 5% 5% 5% 3%

Memo: Return Metrics

Consolidated Return on Capital 11.9% 11.6% 11.8% 12.0% 12.2% 12.5%
Return on Capital for New MBS Issuances 11.9% 11.9% 11.9% 11.9% 11.9% 11.9%

Source: Pershing Square estimates. Assumes PSPA commitment fee begins at IPO. 86
Illustrative Financial Projections: Freddie Mac

We believe a low-double-digit return on capital balances the GSEs’

utility-like status with the need to deliver a market return to investors

FMCC Illustrative Financial Projections

($ in millions, except per share data) 2027E 2028E 2029E 2030E 2031E 2035E
Single-Family Guarantees ($bn) $3,250 $3,315 $3,381 $3,449 $3,518 $3,808
Growth 2% 2% 2% 2% 2% 2%
Avg. Portfolio G-Fee (bps) 61 62 62 63 64 65
TCCA Fees (bps) (10) (10) (10) (10) (10) (10)
Net Credit Losses (bps) (8) (10) (10) (10) (10) (10)
G&A & Net Other Expenses (bps) (14) (14) (14) (14) (14) (14)
PSPA Commitment Fee (bps) 0 (2) (2) (2) (2) (1)
Single-Family Guarantee Pretax Income $9,316 $8,558 $8,994 $9,443 $9,906 $11,228
bps 29 26 27 27 28 29
Investments & Multifamily Guarantees ($bn) $546 $571 $596 $623 $646 $746
Investments & Multifamily Pretax Income $3,133 $3,232 $3,335 $3,442 $3,539 $3,959
bps 57 57 56 55 55 53
Plus: Income on Retained Capital (3.0% Rate) 599 1,356 1,497 1,596 1,698 2,124
Less: Taxes at 21% (2,740) (2,761) (2,903) (3,041) (3,180) (3,635)
Net Income to Common $10,308 $10,386 $10,923 $11,440 $11,964 $13,676
bps 27 27 27 28 29 30
Diluted Shares Outstanding 4,096 4,096 4,096 4,096 4,096 4,096
Diluted EPS $2.52 $2.54 $2.67 $2.79 $2.92 $3.34
Growth 1% 5% 5% 5% 3%

Memo: Return Metrics

Consolidated Return on Capital 10.4% 10.0% 10.2% 10.3% 10.5% 10.6%
Return on Capital for New MBS Issuances 11.7% 11.7% 11.7% 11.7% 11.7% 11.7%

Source: Pershing Square estimates. Assumes PSPA commitment fee begins at IPO. 87
Common Stock Valuation: Fannie Mae

Using our base case modeling assumptions, we estimate that Fannie Mae
shares could be worth ~$35 by year-end 2026 when fully recapitalized

FNMA Illustrative Valuation

2035E Dividend per Share $2.23

Perpetuity Growth Rate 3.0%
Assumed Cost of Equity 8.0%
Implied Share Price - 12/31/34 $44.63
x2035E EPS 15.0x
Discount Factor to 12/31/26 at 8.0% 0.54
Plus: PV of Interim Dividends $10.88
Implied Value per Share - 12/31/26 $34.99
x2027E EPS 15.9x
Multiple of Current Share Price 5.6x
Assumed IPO Discount 10%
IPO Price per Share at 12/31/26 $31.81
Memo: Current Share Price $6.21

88
Common Stock Valuation: Freddie Mac

Using our base case modeling assumptions, we estimate that Freddie Mac
shares could be worth ~$39 by year-end 2027 when fully recapitalized

FMCC Illustrative Valuation

2035E Dividend per Share $2.41

Perpetuity Growth Rate 3.0%
Assumed Cost of Equity 8.0%
Implied Share Price - 12/31/34 $48.25
x2035E EPS 14.5x
Discount Factor to 12/31/27 at 8.0% 0.58
Plus: PV of Interim Dividends $10.68
Implied Value per Share - 12/31/27 $38.84
x2028E EPS 14.6x
Multiple of Current Share Price 6.9x Assumes 15% IPO discount
for FMCC vs. 10% IPO
Assumed IPO Discount 15% discount for FNMA, reflecting
IPO Price per Share at 12/31/27 $33.77 significantly larger IPO size
Memo: Current Share Price $5.66

89
How will Fannie and Freddie be able to IPO
at more than $30 per share when the
stocks currently trade at ~$6?

90
Path to a “Re-IPO”: GGP Case Study

GGP shares appreciated dramatically as key catalysts unfolded prior to

exiting bankruptcy, culminating in a “re-IPO” at an attractive valuation

GGP share price and stock distributions from 12/31/2008 to 12/31/2010

$25.00 5/3/10-5/7/10: Final bids; GGP wins 11/15/10: GGP sells
court approval of BPF plan $2.3bn of stock at
$14.75/sh.
1/27/10: BAM
$20.00 8/11/09: Court
12/18/09: Court approves recap proposal 10/21/10: Court
denies property
common stock dividends at $8.14/sh. confirms reorg
lenders’ motions
to dismiss 12/1/09: GGP files plan
Share price

$15.00 reorg plan to exit BK

5/13/09: DIP facility 11/18/09:
approved; motions Rumors of 11/9/10: GGP
4/14/10: SPG matches
$10.00 to dismiss BK filed SGP interest emerges
BPF bid excl. warrants
in GGP from BK;
4/16/09: GGP 3/8/10: Pershing HHC spinoff
files for Square and Fairholme
$5.00 bankruptcy 2/16/10: SPG join BAM bid
cash offer at
2/24/10: BAM recap proposal
$6/sh.
at $10/sh. plus warrants
$0.00
12/31/08 3/31/09 6/30/09 9/30/09 12/31/09 3/31/10 6/30/10 9/30/10 12/31/10

GGP Share Price Pro Rata HHC Shares and GGP Stock Dividend (1)

Source: Bloomberg, public filings. BAM = Brookfield Asset Management, SPG = Simon Property Group, BPF = BAM, Pershing Square and Fairholme.
Note: GGP is presented as an illustrative example of a company, that like Fannie and Freddie, was a public company that experienced financial distress, delisted from the NYSE, and was then able to restructure and re-list. There are
significant differences between GGP and Fannie and Freddie, especially that Fannie and Freddie are GSEs in conservatorship. There is no guarantee that Fannie or Freddie can execute a strategy similar to GGP or that they would have
similar results. GGP’s share price is provided for illustrative purposes only and while GGP was an investment of the Pershing Funds, its share price over time is not an indication of past or future returns of the Pershing Square funds. 91
(1) Includes GGP stock dividend paid January 28, 2010 and pro rata HHC shares received in spinoff on November 9, 2010.
Fannie and Freddie Qualify for NYSE Listings

Fannie and Freddie meet all the NYSE listing requirements today and
could re-list on the NYSE before exiting conservatorship, subject to
approval by FHFA

Fannie (FNMA) Freddie (FMCC)

NYSE Listing Requirements(1):

Minimum Share Price $4.00  

Distribution
Standards

Publicly Held Shares 1.1mm  

Number of 400 round
Shareholders lot holders  
Market Value of
Public Float
$40mm  
Global Market
$200mm  
Standards
Financial

Capitalization
Aggregate
Adjusted Pre-Tax
Income
$10mm over last  
three years(2)

A NYSE listing comes with significant benefits including increased visibility, credibility,
liquidity, and access to capital
Source: https://www.nyse.com/publicdocs/nyse/listing/NYSE_Initial_Listing_Standards_Summary.pdf
(1) Must meet all of the distribution standards but only one of the financial standards.
92
(2) Also requires at least $2mm of adjusted pre-tax income in each of the two most recent fiscal years and positive adjusted pre-tax income in each of the prior three fiscal years.
Trading Comparables for Fannie and Freddie

We believe Fannie and Freddie should be valued somewhere between

P&C insurance companies and regulated utilities

Property & Regulated Fannie and

Casualty Insurance Utilities Freddie

Business Attributes
Pricing Volatile Regulated Regulated
Must be chartered
Competitors Many Few, if any
by Congress
Underwriting Discretion High Duty to serve Duty to serve

Geographic Medium Low High

Diversification

Financial Attributes(1)
Tangible ROE >20% ~11% ~11% to 12%

EPS Growth ~8% ~7% ~3%

Dividend Yield ~2% ~3.5% ~5%

(1) See next page for supporting detail. 93

Comparable Company Valuations and Returns

We believe a mid-teens multiple of earnings is appropriate when

benchmarked against P&C insurance and regulated utility companies
Return on Trading Multiples Total Shareholder Return
(1)
Mkt Cap Common Equity CY'25E Market Cap / EPS Dividend
(2)
Company ($bn) Book Tangible P/E BV TBV Growth Yield TSR
P&C Insurance
Progressive $142.0 31.0% 31.0% 16.9x 5.23x 5.23x 3.2% 2.0% 5.3%
Chubb 108.2 13.9% 21.2% 11.4x 1.65x 2.76x 6.8% 1.4% 8.2%
Travelers 54.5 15.9% 17.3% 11.4x 1.97x 2.36x 10.2% 1.8% 12.0%
Allstate 49.8 26.1% 27.6% 9.8x 2.64x 3.18x 10.4% 2.0% 12.4%
P&C Median 21.0% 24.4% 11.4x 2.30x 2.97x 8.5% 1.9% 10.1%

Regulated Utilities
Southern Co. $90.2 13.9% 16.7% 19.1x 2.71x 3.25x 6.5% 3.5% 10.0%
Duke Energy 82.2 9.1% 15.2% 16.8x 1.71x 2.85x 6.3% 3.9% 10.3%
American Electric Power 50.7 11.4% 11.4% 16.2x 1.90x 1.91x 7.0% 3.8% 10.8%
PSEG Inc. 43.0 10.7% 10.7% 21.4x 2.67x 2.67x 7.6% 2.8% 10.4%
Xcel Energy 37.3 10.9% 10.9% 17.0x 1.93x 1.93x 8.0% 3.4% 11.4%
Consolidated Edison 31.3 8.7% 8.9% 16.0x 1.43x 1.45x 5.8% 3.7% 9.6%
Utility Median 10.8% 11.2% 16.9x 1.92x 2.30x 6.8% 3.6% 10.3%

50% P&C Median / 50% Utility Median 15.9% 17.8% 14.1x 2.11x 2.63x 7.6% 2.7% 10.2%
(3)
FNMA - Base Case $246 12.5% 12.5% 15.0x 1.87x 1.87x 3.0% 5.0% 8.0%
(3)
FMCC - Base Case $159 10.6% 10.6% 14.5x 1.53x 1.53x 3.0% 5.0% 8.0%

Source: Capital IQ, Bloomberg, company filings, broker research.

(1) Returns on common equity and tangible common equity for insurance and utility companies are LTM 9/30/24 per broker research and Pershing Square estimates.
(2) Consensus EPS growth for CY 2026E for comparable companies; LT EPS growth in 2035E for FNMA and FMCC.
(3) FNMA and FMCC market caps are as of 12/31/27E PF. All other statistics represent run-rate figures in 2035E to demonstrate long-term returns and valuations. 94
Pro Forma Common Share Ownership

Post-restructuring and a new capital raise, the American taxpayers will

continue to own majority stakes in Fannie and Freddie

Fannie Ownership Post-IPO Freddie Ownership Post-IPO

Converted
Converted Junior
Junior Preferred
Preferred 10%
9%

Legacy Legacy
Shareholders Shareholders
18% 16%

New IPO US Treasury

New IPO US Treasury
Investors Warrants
Investors Warrants
11% 63%
2% 71%

We believe that Fannie and Freddie have widely distributed shareholder bases today.
Both would be index-eligible and rank in the 100 largest S&P 500 companies, and would
be indirectly owned by millions of Americans through index funds
Source: Company filings and Pershing Square estimates.
Note: See prior pages for base case IPO assumptions. 95
Value of Warrants to Taxpayers

We believe that Treasury’s warrants could generate over $300 billion

over time, providing a meaningful source of funds for other government
priorities

Illustrative Monetization Path for Treasury ($bn)

'27-'32E
2027E 2028E 2029E 2030E 2031E 2032E Total
Common Dividends Received
Fannie Mae $7 $6 $5 $3 $2 $0 $23
Freddie Mac 0 4 4 3 2 1 14
Total Common Dividends $7 $9 $9 $6 $4 $1 $37

Proceeds from Stock Sales(1)

Fannie Mae $32 $33 $34 $35 $36 $0 $169
Freddie Mac 0 20 21 21 22 22 106
Total Proceeds from Stock Sales $32 $53 $54 $56 $58 $22 $275

Total Return on UST Warrants $39 $62 $63 $62 $62 $24 $311

(1) Assumes 20% of UST shares are sold annually in the five years following each company’s IPO. Assumes shares are sold at a 5% discount to the then-market price,
which is estimated as ~15x forward earnings at the time of sale. 96
Thoughts on UST Senior Preferred

We believe the narrative around Treasury potentially “converting” its

Senior Preferred Stock (“SPS”) into common stock is flawed

 Treasury already owns 79.9% of both companies

 Mathematically, this claim on the GSEs’ earnings can only increase by 25%

 An attempt to convert the SPS into common would invite new litigation
 Precludes any new private capital raise as no investor will buy common stock in
the companies with potentially existential litigation outstanding
 Would delay a conservatorship exit well beyond the current administration’s term

 In the unlikely scenario that a re-IPO and exit from conservatorship were
possible, an SPS conversion would severely impact the GSEs’ valuation
 Investors would either assign a very low valuation multiple to a company whose
prior shareholders were wiped out by the government without just compensation,
or more likely choose not to invest

We are confident that an SPS conversion would result in Treasury’s stakes in

Fannie and Freddie being worth substantially less

97
Thoughts on UST Senior Preferred (Cont.)

An SPS conversion would severely impair the value of Treasury’s stakes

in Fannie and Freddie and preclude any new private capital raise

Illustrative value of Treasury’s investment in Fannie Mae ($bn)

SPS
Deemed
Repaid SPS Converted to Common at IPO Price(1)
Assumed Cost of Equity 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%
Implied Long-Term P/E Multiple 15.0x 10.6x 8.2x 6.7x 5.7x 4.9x
Implied Market Cap at 12/31/26 $228 $148 $115 $95 $80 $70
Common Stock Ownership Mix
Treasury 71% 96% 95% 94% 93% 92%
New Common Equity 2% 4% 5% 6% 7% 8%
Legacy Common Equity 18% 0% 0% 0% 0% 0%
(1)
Converted Junior Preferred 9% 0% 0% 0% 0% 0%
Value of Treasury Common at 12/31/26 $161 $143 $110 $89 $75 $64
% Reduction vs. SPS Deemed Repaid (12%) (32%) (45%) (54%) (60%)

In the unlikely scenario that a SPS conversion could be accomplished, Treasury

would own a higher percentage of much less valuable companies

(1) Scenarios in which the SPS is converted to common assume the junior preferred is left outstanding rather than converted to common to avoid model circularity. 98
Thoughts on UST Senior Preferred (Cont.)

An attempt to convert the SPS into common would be inconsistent with

FHFA’s duties as a conservator

“Eighty-seven years of FDIC, FSLIC, and RTC history demonstrate

that conservators are caretakers who are not meant to operate an
institution indefinitely. A conservatorship is supposed to be a
‘temporary measure’ leading either to rehabilitation or to a
receivership and ultimately payment of creditors and
shareholders.”

“Nor do federal conservators or receivers act for the benefit of a

single preferred shareholder (the government) to the detriment of
all of the institution’s other shareholders. Such ‘unprecedented
deviations from settled insolvency practices and creditor
protections undercut one of the critical foundations of a market
economy, and could call into question the reliability of the
government as a resolution authority.”
- Amicus Brief of Thomas P. Vartanian, 9/23/2020

Source: https://www.supremecourt.gov/DocketPDF/19/19-422/154723/20200923140924837_19-422%2019-563%20tsac%20Vartanian.pdf. 99
Thoughts on UST Senior Preferred (Cont.)

Consistent with more than 4,000 precedent conservatorships and

receiverships, the Senior Preferred Stock is only entitled to repayment
with interest

“In open bank assistance and conservatorships, the stakeholders’

interests are protected by their contractual rights since the
institution is continuing to function as an open and operating
company. The provider of the assistance, formerly the FDIC for
banks and Treasury for the Companies, receives repayment plus
interest like any creditor based on the assistance agreement. All
past open bank assistance and conservatorships, and all
principles underlying HERA and related insolvency statutes,
limited that repayment to the actual funding provided because the
statutory goal explicitly is to restore the company to a ‘sound and
solvent’ condition. That cannot be accomplished with a
confiscatory seizure of current and future value.”

- Cato Institute Working Paper, Michael Krimminger and

Mark Calabria, 2/9/2015
Source: https://www.cato.org/sites/cato.org/files/pubs/pdf/working-paper-26_1.pdf. 100
 The GSEs are Already Getting Ready to Exit

“Had we stopped the sweep of capital day one, by the time we got to the fourth
year of the Trump administration, we easily could have done a secondary offering
or two and fully capitalize the companies, or get very close it.”
- Craig Phillips, Counselor to the US Treasury Secretary
from 2017 to 2019, in May 27, 2021 interview
101
Source: https://www.situsamc.com/resources-insights/podcasts/hill-episode-10-craig-phillips-former-counselor-us-secretary-treasury.
We Believe the Time to Act is Now

 Current robust economic and financial market conditions are ideal for
successful private capital raise
 Unemployment remains near record lows
 GDP growth trending at approximately 3%
 National home prices have surpassed the 2006 peak(1)
 Major stock market indices at or near all-time highs

 Logical time for Treasury to monetize the rest of its investment

 Treasury’s SPS has been repaid with more than its contractual return
 Opportunity for Treasury to exercise its warrants and utilize the ~$300bn of
future proceeds to fund key priorities

 Consistent with mandate to simplify the government (i.e. DOGE)

 Four-year runway with a pro-business administration led by the

consummate dealmaker

(1) Based on Freddie Mac House Price Index. 102

In the Wise Words of President-Elect Trump…

“Deals are my art form. Other people

paint beautifully on canvas or write
wonderful poetry. I like making deals,
preferably big deals. That's how I get
my kicks.”
- Donald J. Trump

Source: The Art of the Deal (1987). 103