BNL Finance has published over a dozen articles related to Federal National Mortgage Association Fannie Mae (OTCMKTS:FNMA), Federal Home Loan Mortgage Corporation (Freddie Mac) (OTCMKTS:FMCC), GSE reform, and the greatest heist in history: $255 billion in profits from Fannie Mae and Freddie Mac paid to the Treasury as part of its $187 billion bailout during the financial crisis.
The bottom line is the Treasury takes all of Fannie Mae (OTCMKTS:FNMA) and Freddie Mac’s (OTCMKTS:FMCC) profits via government conservatorship. 100s of companies were bailed out during the recession, and all had an exit plan, including the banks and auto makers. Yet, Fannie and Freddie have returned more capital to the Treasury than any other company, and remain in conservatorship.
That’s where we are now, and with that background in mind, let’s explore why now is the perfect time to buy FNMA stock or FMCC stock.
First and foremost, FNMA stock and FMCC stock are nothing more than speculative bets that Fannie Mae and Freddie Mac will eventually get out of government conservatorship. Up until recently, the only hope seemed to be the courts. As a result, FNMA stock fluctuated between $1.50 and $2.50 for most of 2015 and 2016. Call it a $2.5 billion bet.
That price range, $1.5 to $2.5, is telling investors that the market saw no legitimate shot of GSE reform with the courts. If anything, the trading range suggests FNMA stock was nothing more than an instrument for swing traders. As a result, the Perry ruling in February did not shock me one bit. The Court of Appeals for the District of Columbia ruled that net worth sweeps were essentially legal as it pertains to Fannie Mae and Freddie Mac. For those unfamiliar, net worth sweep is what allows the Treasury to leave Fannie Mae and Freddie Mac undercapitalized and allows the Treasury to drain their earnings.
Nevertheless, FNMA and FMCC stock price in 2015 and the majority of 2016 properly illustrated to investors that there was no chance of ending government conservatorship in the courts. It was not going to happen, regardless if a blogger dissected every word of the court decision and finds a couple sentences they view favorably.
However, FNMA stock did not soar from $1.5 to $5/share in late 2016 because of Fannie Mae’s odds in the Perry ruling. No, those gains were driven by Steven Mnuchin being selected by Trump as Treasury Secretary. Mnuchin has publicly stated many times that GSE reform is a top priority. He co-owned the former IndyMac and knows all too well the importance of private market ownership.
Continue to page 2