Warren Withdraws Support of Bill That Would Ban Treasury From Selling Fannie Mae Stock

Warren Withdraws Support of Bill That Would Ban Treasury From Selling Fannie Mae Stock

Fannie Mae

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Warren Withdraws Support of Bill That Would Ban Treasury From Selling Fannie Mae Stock by Todd Sullivan, ValuePlays

Being the co-sponsor…this bill is effectively dead…

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Senator Elizabeth Warren is withdrawing her support for a Republican bill that had been on the fast track to bar the Treasury Department from selling Fannie Mae and Freddie Mac preferred shares, according to a person familiar with the matter.

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Warren, who originally cosponsored the legislation, pulled her endorsement because the bill still allows the entities’ guarantee fees to be used to cover government spending, said a person familiar with her thinking who asked not to be identified because the matter is private. Those fees, which Fannie Mae and Freddie Mac charge to lenders to protect against losses, could be passed down to low-income borrowers if they’re increased.

Without Warren’s support, the legislation will have difficulty moving to the floor of the Senate this week. Warren, a Massachusetts Democrat, wasn’t available to comment on the bill.

The Fannie Mae and Freddie Mac legislation by Senator Bob Corker, a Tennessee Republican, calls for preventing Treasury from selling or liquidating the preferred shares until Congress approves a housing-finance overhaul. The bill would be a blow to investors such as hedge funds that have made a long-shot bet on the companies’ stock paying off because it would block them from receiving a payout for their shares.

Hedge fund firms such as Pershing Square Capital Management and Fairholme Capital Management are challenging the U.S. takeover of Fannie Mae and Freddie Mac in federal court to stop an arrangement in which the Treasury takes all of the entities’ profits as a dividend on the $187.5 billion taxpayer bailout the companies required after the 2008 financial crisis.

Corker attempted to fast track his legislation, cosponsored by Senator David Vitter, a Louisiana Republican, to a Senate floor vote last week and was met with opposition from Democrats. Senator Sherrod Brown, an Ohio Democrat and the top Democrat on the Banking Committee, had put a hold on the bill. He prefers a comprehensive approach to Fannie Mae and Freddie Mac reform rather than piecemeal legislation, said Greg Vadala, a spokesman for Brown. Vadala declined to comment further on Corker’s bill. If Brown were to lift the block, it could clear the way for the legislation to pass quickly in the Senate.

Fannie Mae has returned $142.5 billion to the U.S. Treasury under conservatorship since 2008, while Freddie Mac has returned $96.5 billion, according to their most recent disclosures.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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  1. “Long shot bet” ??? I cannot believe this hack is still prattling publicly about anything relating to banking and mortgages. A few years back on Seeking Alpha he announced with great confidence the large banks had acted legally issuing all of the fraudulent mortgages which led to the meltdown and that the legal cases against them would be dismissed (just look up his SA articles). I disagreed, asking whether he had engaged in any legal analysis of the claims against the banks. Within the next couple of years enormous judgments and settlements against all of the large mortgage banks came down like rain. Now again this arrogant pundit is making legal predictions and again the court’s will educate him by reversing Treasury’s astonishing illegal conduct respecting these companies. Sadly, after which, I predict we will again hear no post-mortem from Mr. Sullivan. Instead, he will continue commenting without a clue on companies involved in significant litigation. The only thing more astonishing than Treasury’s actions is that these Wall Street touts actually make a living at this.

  2. When Sen Warren realized how much revenue the Government is getting from overcharging home buyers on mortgages, she had to make up an excuse to pull support for the bill. What Sen Warren doesn’t understand is investment cycles are poised to wipe out Fannie MAE and Freddie MAC AGAIN!!!. A shrewd business person would simply sell the stinky stuff to those with irrational exuberance.

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