GSE Junior Preferred Shares
Fannie Mae & Freddie Mac Junior Preferred Stock
A Deep Dive
Fannie Mae and Freddie Mac junior preferred shares are among the most misunderstood securities in the market. I have written over 300 articles about them, hold them personally, and have spent a decade analyzing their intrinsic value. This page explains what they are, why they matter, and where to learn more.
What Are GSE Junior Preferred Shares?
Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are government-sponsored enterprises (GSEs) that guarantee roughly half of all U.S. mortgages. Before the 2008 financial crisis, both companies issued preferred stock to raise capital. These are the “junior preferred” shares.
Junior preferred shares sit below the senior preferred stock held by the U.S. Treasury but above common stock in the capital structure. They have a stated par value (typically $25 or $50 per share) and were originally issued with dividend rates ranging from 4% to over 8%.
Since 2008, dividends on junior preferred shares have been suspended. The shares trade on the OTC markets at deep discounts to par value. Whether they ever return to par depends entirely on how the conservatorship ends — a question that has consumed my professional life for over a decade.
Key Tickers
The most widely followed GSE junior preferred issues. I hold positions in these securities — see my full holdings for details.
Fannie Mae 8.25% Non-Cumulative Preferred Stock, Series S
Freddie Mac 5.81% Non-Cumulative Preferred Stock, Series Z
Freddie Mac Variable Rate Non-Cumulative Preferred Stock, Series S
Freddie Mac 5.0% Non-Cumulative Preferred Stock, Series J
Why They Matter
The conservatorship of Fannie Mae and Freddie Mac is the largest government seizure of private property in American history. Here is the timeline.
Conservatorship
FHFA places Fannie Mae and Freddie Mac into conservatorship. Treasury injects capital via Senior Preferred Stock Purchase Agreements (PSPAs) with a 10% dividend. Junior preferred dividends suspended.
Third Amendment / Net Worth Sweep
Treasury replaces the 10% fixed dividend with a Net Worth Sweep, taking nearly all GSE profits every quarter. Junior preferred shareholders are left with nothing despite the companies returning to massive profitability.
Litigation & Advocacy
Shareholders file dozens of lawsuits challenging the Net Worth Sweep. Cases work through federal courts. Organizations like Investors Unite advocate for shareholder rights and GSE reform.
Reform & Recapitalization
Political momentum builds for ending the conservatorship. The question shifts from 'if' to 'how' and 'when.' Junior preferred shares remain deeply undervalued relative to par if recap succeeds.
My Perspective
I have been writing about Fannie Mae and Freddie Mac junior preferred shares since 2013. I have published over 300 articles on SeekingAlpha, written 8 books on the topic, and testified publicly about the Net Worth Sweep. I hold significant positions in FNMAS, FMCKJ, FMCCS, and FMCCJ.
My thesis is straightforward: the junior preferred shares have a par value that dramatically exceeds their current market price. If the conservatorship ends with any form of recapitalization that respects the existing capital structure, these shares are deeply undervalued. I have documented this thesis extensively on my Fanniegate page.
For weekly updates and deep-dive analysis on GSE preferred shares, I offer a $20/month investor community with direct Q&A access.
Important Disclaimer
This page reflects my personal views and is for educational purposes only. It is not financial advice. I hold positions in the securities discussed on this page and have a direct financial interest in their outcome. Preferred stock investments carry significant risk, including the possibility of total loss. Always do your own research and consult a financial advisor before making investment decisions.
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