The Complete Guide to Fannie Mae & Freddie Mac
Two companies guarantee over 70% of American mortgages, were placed into government conservatorship in 2008, had $300+ billion swept by the Treasury, and are now on the path to recapitalization. Here's the full story.
$5T+
Mortgages Guaranteed
$301B
Paid to Treasury
17+ Years
In Conservatorship
2026
Recap In Progress
What Are Fannie Mae and Freddie Mac?
Fannie Mae (formally the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) are government-sponsored enterprises (GSEs) — publicly chartered, shareholder-owned corporations with a public mission to support the US housing market.
They don't make mortgages directly. Instead, they buy mortgages from banks and lenders, package them into mortgage-backed securities (MBS), and guarantee the principal and interest payments. This process provides liquidity to the mortgage market — when a bank sells its mortgages to Fannie or Freddie, it frees up capital to make new loans.
Together, Fannie Mae and Freddie Mac guarantee over 70% of all US residential mortgages — more than $5 trillion in outstanding mortgage obligations. They are the backbone of the American housing finance system. Without them, 30-year fixed-rate mortgages would essentially cease to exist as we know them.
They are, by any measure, two of the most important financial institutions in the world. And since 2008, they have been under the control of the United States government.
Timeline: From Creation to Recapitalization
88 years of history, from FDR to the present day.
Fannie Mae Created
OriginThe Federal National Mortgage Association (Fannie Mae) was established as a government agency under FDR's New Deal to provide liquidity to the mortgage market during the Great Depression. It bought FHA-insured mortgages from banks, freeing up capital for more lending.
Fannie Mae Goes Public
StructureFannie Mae was converted from a government agency to a government-sponsored enterprise (GSE) — a publicly traded, shareholder-owned corporation with an implicit government backstop. This removed it from the federal budget while maintaining its housing mission.
Freddie Mac Created
OriginThe Federal Home Loan Mortgage Corporation (Freddie Mac) was established to provide competition for Fannie Mae and further expand the secondary mortgage market. Together, they would eventually guarantee over 70% of all US residential mortgages.
Rapid Growth & Risk
GrowthBoth GSEs expanded aggressively into riskier mortgage products, driven by political pressure to increase homeownership and competition with private-label securitizers. Their combined mortgage book exceeded $5 trillion. Accounting scandals at both companies rattled investor confidence.
Conservatorship
CrisisOn September 6, 2008, FHFA placed both Fannie Mae and Freddie Mac into government conservatorship — the largest bailout in American history. Treasury purchased senior preferred stock and warrants, providing up to $100B each (later raised to $200B each). Common and preferred dividends were suspended.
The Net Worth Sweep (Third Amendment)
SweepOn August 17, 2012, Treasury and FHFA amended the Preferred Stock Purchase Agreements to sweep 100% of Fannie and Freddie's quarterly profits to the government — replacing the 10% fixed dividend. This "Net Worth Sweep" meant the companies could never build capital, never repay their debt, and never exit conservatorship. Shareholders called it theft.
Lawsuits & Discovery
LegalShareholders filed dozens of lawsuits challenging the Net Worth Sweep. Key cases: Perry Capital v. Mnuchin, Fairholme Funds v. FHFA, Collins v. Yellen. Court-ordered discovery revealed internal documents showing the sweep was designed to prevent the GSEs from ever paying back shareholders — contradicting the government's public narrative.
Collins v. Yellen — Supreme Court
LegalThe Supreme Court ruled in Collins v. Yellen that FHFA's structure was unconstitutional (single director removable only for cause) but declined to invalidate the Net Worth Sweep on statutory grounds. The Court sent the case back to lower courts for further proceedings on potential constitutional remedies.
Recapitalization Momentum
ProgressThe companies retained over $100 billion in combined capital. FHFA Director Sandra Thompson was replaced. New leadership signaled openness to ending conservatorship. The letter agreement between Treasury and FHFA was amended to allow capital retention. The market began pricing in recapitalization for the first time since 2012.
The Endgame
CurrentRecapitalization planning is underway. The question is no longer if Fannie Mae and Freddie Mac will exit conservatorship, but how and when. The structure of the recap — conversion terms for Treasury warrants, treatment of junior preferred stock, capital requirements — will determine the outcome for millions of shareholders.
The Core Thesis
Why Preferred Stocks?
The investment thesis for Fannie Mae and Freddie Mac preferred stock is straightforward: buy junior preferred shares at a steep discount to par value, and wait for recapitalization to restore them to full value.
Most GSE junior preferred stocks have a par value of $25. Before conservatorship, they paid dividends of 5-8% annually. Those dividends were suspended in 2008 and have not been paid since. Many of these series traded in the $2-$7 range for years after the Net Worth Sweep.
The thesis rests on several pillars:
- 1.The companies are profitable. Fannie Mae and Freddie Mac have generated over $300 billion in profits since the Net Worth Sweep. They are not insolvent — they are among the most profitable financial institutions on Earth.
- 2.The bailout has been repaid. The $187.5 billion bailout has been more than repaid through $300+ billion in dividend payments under the sweep. The government has no moral or financial justification for continuing to hold these companies.
- 3.Political will exists. Multiple administrations have expressed interest in ending conservatorship. The current political environment is the most favorable for recapitalization since 2008.
- 4.Preferred stock has structural protection. Unlike common stock, preferred shares have a defined par value ($25) and priority in the capital structure. In recapitalization, preferred holders are expected to receive par value or better.
The risk is that recapitalization happens on unfavorable terms or doesn't happen at all. The reward is par value ($25) plus potentially years of accumulated dividends. That asymmetry is why investors like Glen Bradford have held these positions since 2013.
Key Ticker Symbols
The most traded Fannie Mae and Freddie Mac securities for investors researching the GSE thesis.
Fannie Mae Common Stock
The common shares of Fannie Mae. Highly speculative — value depends entirely on recap structure and dilution from Treasury's warrants for 79.9% of common stock.
Freddie Mac Common Stock
The common shares of Freddie Mac. Same risk profile as FNMA — subject to massive dilution from Treasury warrants.
Fannie Mae 8.25% Non-Cumulative Pfd Series S
One of the most liquid Fannie Mae junior preferred series. $25 par value. Non-cumulative. Among the most actively traded GSE preferreds.
Freddie Mac 5.81% Non-Cumulative Pfd Series Z
A heavily traded Freddie Mac junior preferred series. $25 par value. The investment thesis centers on recapitalization restoring value toward par.
Fannie Mae 8.25% Non-Cumulative Pfd Series T
Another popular Fannie Mae preferred series for retail investors. Same $25 par value and core investment thesis as FNMAS.
Freddie Mac 5.57% Non-Cumulative Pfd Series Y
A Freddie Mac junior preferred with a lower coupon rate but the same recapitalization thesis driving potential returns.
Freddie Mac Variable Rate Pfd Series S
A variable-rate Freddie Mac preferred. The floating-rate structure would pay higher dividends as rates rise once dividends are restored.
Freddie Mac Fixed-to-Floating Pfd Series T
A fixed-to-floating Freddie Mac preferred that has already converted to its floating rate period. Attractive if dividends resume in a higher-rate environment.
Current Status & Outlook (2026)
Where things stand right now.
Capital Position
Both companies have retained over $100 billion in combined capital since the Net Worth Sweep was effectively modified to allow capital retention. This is the largest capital base the GSEs have held since conservatorship began. FHFA has set enterprise-level capital requirements that would require approximately $250-300 billion for full capitalization.
Regulatory Environment
FHFA leadership has signaled openness to recapitalization planning. The Enterprise Regulatory Capital Framework (ERCF) is in place, providing a clear target for the amount of capital needed. Treasury and FHFA are engaged in discussions about restructuring the Preferred Stock Purchase Agreements.
Political Landscape
The current administration has expressed support for privatization and ending conservatorship. Bipartisan coalitions like Investors Unite have maintained pressure on Congress. The question has shifted from “should we recapitalize?” to “how do we structure the recap?”
Key Uncertainties
The major open questions: Will Treasury exercise, convert, or cancel its warrants for 79.9% of common stock? What will happen to the senior preferred stock? Will junior preferred shareholders receive par value? Will the companies need to raise new capital via public offerings? The answers will determine outcomes for every class of shareholder.
Personal Note
Why I've Held Since 2013
I first bought Fannie Mae and Freddie Mac junior preferred shares in 2013. The Net Worth Sweep had been announced the year before. The shares were trading at deep discounts to par. And the thesis was simple: these companies guaranteed 70% of American mortgages, were generating massive profits, and the government had effectively stolen those profits from shareholders.
Thirteen years later, I still hold. The thesis hasn't changed — it's gotten stronger. The companies have paid back the bailout many times over. The courts have exposed what happened. And the political will to end conservatorship has never been stronger.
I wrote 8 books on Fanniegate. I've documented every major development on this site. And I hold 26 series of junior preferred stock across both companies.
This isn't a trade. It's a thesis. And the resolution is closer than it has ever been.
Frequently Asked Questions
What are Fannie Mae and Freddie Mac?
Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are government-sponsored enterprises (GSEs) that buy mortgages from lenders, package them into mortgage-backed securities, and guarantee the payments. Together they guarantee over 70% of all US residential mortgages, making them foundational to the American housing finance system.
What happened to Fannie Mae and Freddie Mac in 2008?
On September 6, 2008, the Federal Housing Finance Agency (FHFA) placed both companies into government conservatorship — effectively a government takeover. The US Treasury purchased $187.5 billion in senior preferred stock and warrants for 79.9% of each company's common stock. Common and preferred dividends were suspended. It was the largest bailout in American history.
What is the Net Worth Sweep?
The Net Worth Sweep (officially the Third Amendment to the Preferred Stock Purchase Agreements) was enacted on August 17, 2012. It changed Treasury's fixed 10% dividend to a sweep of 100% of each company's quarterly profits. This meant the companies could never build capital, never repay their bailout, and never exit conservatorship. Shareholders allege this was designed to effectively nationalize the companies while avoiding formal nationalization.
Have Fannie Mae and Freddie Mac paid back the bailout?
Yes — many times over. As of 2025, Fannie Mae and Freddie Mac have paid the US Treasury over $300 billion through the Net Worth Sweep, far exceeding the $187.5 billion in bailout funds received. However, Treasury classifies these payments as dividends on its senior preferred stock, not repayment of principal. This accounting treatment is central to the shareholder lawsuits.
What are Fannie Mae and Freddie Mac preferred stocks?
Both companies issued multiple series of junior preferred stock before conservatorship, with par values of $25 (retail series) and $50 (institutional series). These preferred stocks originally paid fixed dividends but haven't paid since 2008. The investment thesis is that recapitalization will restore value toward par. Key tickers include FNMAS, FNMAT, FMCKJ, and FMCKI.
Why does Glen Bradford invest in Fannie Mae and Freddie Mac preferred stocks?
Glen Bradford has held a concentrated position in GSE junior preferred shares since 2013 because he believes the companies were illegally deprived of their earnings through the Net Worth Sweep. His thesis: recapitalization will restore preferred shares to par value ($25), generating substantial returns from current trading prices. He views it as a deep-value investment backed by a legal and political catalyst.
What is FHFA?
The Federal Housing Finance Agency (FHFA) is the independent federal agency that regulates Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Since 2008, FHFA has served as conservator of both Fannie Mae and Freddie Mac, giving it enormous power over the companies' operations, capital, and future structure. The FHFA director is appointed by the President.
What is recapitalization and when will it happen?
Recapitalization refers to the process of building sufficient capital at Fannie Mae and Freddie Mac to exit government conservatorship and operate as private companies again. This likely involves retaining earnings, potentially raising new capital through stock issuance, and restructuring Treasury's preferred stock and warrants. As of 2026, recapitalization planning is actively underway, though no firm timeline has been announced.
What is Collins v. Yellen?
Collins v. Yellen is the landmark Supreme Court case decided in June 2021. The Court ruled that FHFA's leadership structure was unconstitutional but declined to invalidate the Net Worth Sweep on statutory grounds. The case was remanded to lower courts to determine whether shareholders are entitled to remedies based on the constitutional violation. The case remains the most significant legal challenge to the Net Worth Sweep.
Should I invest in Fannie Mae or Freddie Mac stock?
This is a complex, high-risk investment that depends on political, legal, and regulatory outcomes. Common shares face potential dilution from Treasury's 79.9% warrants. Preferred shares have a clearer path to par value but depend on recapitalization happening on favorable terms. Any investment in GSE securities should be made with full awareness of the risks and with money you can afford to lose. This is not financial advice — do your own research.
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Read moreDisclaimer: This guide is for educational purposes only and does not constitute financial or investment advice. Glen Bradford holds positions in Fannie Mae and Freddie Mac preferred securities. GSE investing involves significant risks including total loss of principal. Political, legal, and regulatory outcomes are uncertain. Past performance does not guarantee future results. Always do your own research. Some content was generated or edited with AI assistance.