What is Fannie & Freddie Mac Daddy?
How Fannie Mae and Freddie Mac Help You Get a Mortgage
Fannie Mae and Freddie Mac exist to support the U.S. home mortgage system. But they don’t lend money to individuals. Instead, they buy mortgage loans from the banks and financial institutions that originate them. This keeps money flowing back into lending institutions so they have plenty of funding on hand to write more mortgages and help more people buy homes.
Fannie Mae and Freddie Mac Are Government Sponsored Enterprises
Fannie and Freddie are private corporations that were chartered by Congress—the formal term for this kind of company is a Government Sponsored Enterprise (GSE). There are several other GSEs, like the Farm Credit System. While GSEs are publicly traded companies, they all serve a very public mission of supporting the nation’s financial system. Because of the large role they play in the economy and their governmental affiliation, some investors assume they are implicitly guaranteed by the federal government. This means they believe the government would bail out Fannie and Freddie if they couldn’t pay back their debts.
Even though Freddie Mac and Fannie Mae are technically shareholder-owned, they have been under government conservatorship since the Great Recession. Many investors who hold stock in the two companies are eagerly waiting for them to emerge from government control so their stock can trade on public exchanges again.
Some things to keep in mind about these two companies include:
- The Treasury buys securities from Fannie Mae and Freddie Mac.
- Fannie and Freddie don’t have to pay state and local taxes.
- Some of the board members are appointed by the president.
For now, the federal government has complete oversight of FNMA and FMCC due to the conservatorship arrangement. However, all parties involved, including the FHFA, have retained advisers to help them get back on track for non-governmental ownership.
In 2014, FHFA published a strategic plan for releasing Fannie and Freddie from conservatorship. The plan has three big goals:
- Prevent foreclosures and keep mortgage credit flowing in a safe and sound manner to keep housing finance markets resilient, liquid, and efficient.
- Reduce taxpayer risk by encouraging more private capital in the mortgage market. This goal would decrease the role that Freddie and Fannie play in mortgages.
- Build a new infrastructure for securitizing single-family residential mortgages.
The idea is to create a system that keeps mortgages affordable and accessible, but without the implicit guarantee that contributed to the financial crisis of 2008.
So How Do We Make Money On Freddie And Fannie May?
Holders of the junior preferred stock are certainly taking a gamble, but a group of deep-pocketed hedge fund managers are making big bets for a payday. Now that both companies are profitable, shareholders are suing the government, claiming they are unjustly taking an excess of funds that should belong to the preferred shareholders.
The junior preferred shares have a collective face value of about $35 billion, and the primary aim of the lawsuits is to get a full payout on the shares. The bailout of Fannie and Freddie cost taxpayers $188 billion, and since the companies have returned more than $200 billion to the Treasury already, it’s easy to see why shareholders feel they should be made whole on the par value of their investments.
Treasury Secretary Steven Mnuchin gave investors some much-wanted details, saying on Fox Business that an agreement between the Treasury and the FHFA that would end the profit sweep from the two companies is in the works, allowing them to retain earnings and recapitalize. If you aren’t familiar, since the government’s crisis-era bailout, Fannie and Freddie have been required to send their profits to the government.
Mnuchin said that the forthcoming agreement would produce “a significant increase in capital and a step in the right direction to us ultimately raising third-party capital” and also emphasized that the priority is to build up adequate capital before the companies are released from government control.
A government focus on building up capital for the companies is a big step in the right direction, and investors seem to agree.
Though proposed by the Trump Administration it seems like a both Demarcates and Republicans are on board for this. But doesn’t mean there wont be litigation.
The various types of preferred shares have either a $25 or $50 par value (original cost and theoretical redemption price) and have coupon, or interest rates ranging from 5% to 8.25% of the par value. For a full list, check Fannie and Freddie’s stock information pages.
That’s why. Will come out of conservatorship in Supreme Court case hearing come October. Preferred share holders like myself have been winning court battles after court battles to finally reach this point. 8 years in the making. They will issue a new ipo to current FNMAS holders at $25 a share most likely after the case decision.
2008 government took over Fannie and collect fees from mortgage payments/profits
2011 bail out completely paid back by Fannie with interest and then some
2012 lawsuit for government to no longer receive profits since bail out was payed back
Remove govnt contro
Steven Mnuchin will finally free up Fannie Mae
Hold for 6 months
profit easy 300%
the hearing is in the next supreme court session, that will be the first case they hear
in other words, now is the time to buy.
Essentially it’s a recapitalization structure case and if they win preferred share holders recieve par value – which is $25 – or the issuance price
It’s a good gamble
But who knows
This has already made its way all the way up the court latter and now is onto the Supreme Court. This will most likely get passed, and we can make some serious multipliers. I could also see this gradually riding BULL up till the decision time.
Charts/How to Play this one?
Could this be used as the clutch for things to go right or wrong. The timing of this could NOT be better. If they lay this over to them they will more than likely start raising interest rates. Which will further drive the nail into the looming recessions coffin.
If you get in there are a ton of tickers to pick but it seems most agree the these preferred stock tickers are the safer play so thats what I’ll recommend:
CHARTS: FNMAS FMCKJ
NEWS _ Stock Market SPAC
So who is Magna, are they cool or know what they are doing?