A lot has changed since FNMA stock peaked at $5 late last year; and FMCC stock over $4.80. Fannie Mae, or Federal National Mortgage Association (OTCMKTS:FNMA), and Freddie Mac, Federal Home Loan Mortgage Corporation (OTCMKTS:FMCC) took a big blow with the Perry ruling earlier this year, and more here lately as Treasury Secretary looks less like a White Knight for FNMA stock and FMCC stock owners and more like a wishy washy politician. This leaves a very important question for current investors: Buy more, cash out, or keep on holding?
No one should have expected a positive outcome in the Perry ruling. Fannie Mae and Freddie Mac have tried their luck in the court system for years, with no positive outcome whatsoever.
Fact is the net profit sweeps that drain Fannie Mae and Freddie Mac of all their liquidity are illegal, unmoral, and also very difficult to understand for investors who have not followed the entirety of this story from the very beginning.
We have spent many articles talking about GSE reform and how it can become a reality. Glen Bradford on SA did a wonderful job, and spent an entire article to do so, explaining the backstory and investment opportunity in GSEs up until this point. For those unfamiliar with the bailout, ownership structure, net worth sweeps and why it is borderline criminal, check out his article.
Nonetheless, we never thought a victory in court was likely. What we did think was that Steve Mnuchin would force GSE reform due to his professional background at Goldman and as co-founder of the former IndyMac. Also, he stated that GSE reform was a top priority before taking office. The difference is that Mnuchin now has a duty to do what’s best for the Treasury, and GSEs like Fannie Mae and Freddie Mac produce a lot of income for the Treasury.
Keep reading on page 2 to know whether Fannie stock and Freddie stock are good buys right now!