Investor Groups Scoop Shares of Fannie Mae, Freddie Mac

Fannie Mae Common Securitization Platform Fannie Mae Mortgage Insurance

Fannie Mae

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Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are attracting interest from investor groups, as they even offer to buy core pieces of the mortgage giants.

Dina ElBoghdady and Danielle Douglas of the Washington Post point out that recent moves from the investor groups complicate legislative efforts to shut down the two mortgage giants.

Increased investor interest

Earlier this month, Fairholme had announced its intention to acquire the insurance businesses of these two Government Sponsored Enterprises (GSEs) – Freddie Mac and Fannie Mae – through exchange of equities worth $52 billion. Fairholme is the largest stakeholder of preferred shares in these two GSEs. However, the recapitalization move was rejected by the White House.

Yesterday, former Treasury Secretary Larry Summers said Fairholme’s plan was at the edge of ludicrous and it’s not something he would remotely support.

Dina ElBoghdady and Danielle Douglas of the Washington Post point out that with the housing market on the mend, investors are betting that the GSEs are poised for a comeback. Investors have bought a substantial number of shares in each of the GSEs on the cheap and have clearly shown that the GSEs offer value for their investment.

Investors’ move might accelerate legislative proposals

As reported earlier, the Corker-Warner Housing Finance Reform and Taxpayer Protection Act introduced on June 25, 2013 would strengthen America’s housing finance system by replacing the GSEs, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA)  and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) with a privately capitalized system that preserves market liquidity and protects taxpayers from future economic downturns.

David Stevens, chief executive of the Mortgage Bankers Association believes the frenzied activity by investor groups will push Congress to move on legislative proposals aimed at reforming the mortgage market. He believes that selling the GSEs off in pieces could have a far more dramatic effect in the market system, as there is a lot of concerns about putting too much change into an already tenuous marketplace.

Bill Ackman acquire stakes in Fannie Mae

However, activist investor Bill Ackman recently said that Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) could do well for the housing sector if it held on to its foreclosed homes rather than selling them. Recently in its 13D filing, Ackman’s hedge fund disclosed a nearly 10% stake in each insurer’s common stock. Pershing Square detailed in the filings that they will push the companies to follow through with a plan for restructuring the GSEs.

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About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports

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