Long-time activist and consumer advocate Ralph Nader has recently become a shareholder activist for Fannie Mae and Freddie Mac. He has joined other investors in Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) in a group called Shareholder Respect.

Fannie Mae FHFA Federal National Mortgage Assctn Fnni Me (FNMA)

Fannie Mae and Freddie Mac: 2008 government bailout

Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) own or guarantee more than 60% of U.S. home loans. The quasi-public companies were bailed out and in effect taken over by the U.S. Treasury at the height of the financial crisis in 2008. All dividends were suspended and the duo, or the two companies were told to continue ongoing operations but not to raise further capital.

The stock price, which had traded as high as $65 in 2007, plunged to around $4 during the crisis and has stayed at that level or below ever since. The key issue for investors in Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) is whether the companies will be allowed to “reemerge” as public companies or whether they will be wound down.

A roadmap to reemergence would, of course, be good news for investors and the stock price would likely rally strongly, but that requires a bickering, partisan Congress to agree on housing finance reform legislation. A wind down of the two mortgage entities might involve payouts to some classes of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shares, but probably not all classes. Although nearly all oppose a wind down, Nader and other shareholder activists are intent on making sure that at least all shareholder interests are represented in the event of a wind down.

Working with Shareholder Respect

Nader has been working actively with Shareholder Respect, a group dedicated to representing the rights of  Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shareholders. “Housing reform will have an impact not just on shareholders, but on industry stakeholders and the broader economy,” Nader said at a round table discussion in Washington yesterday. The group was encouraging Congress to tackle the thorny issue of housing finance reform, as they see that as the best way to unlock the shareholder value of the companies.

Analysts say the currently divided Congress, however, is unlikely to take up a contentious issue such as how to handle Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) in an election year. Besides, the GSEs are turning into cash cows as the economy strengthens, and lawmakers on both sides of the aisle may be loath to give up this source of revenue.