What Are Fannie Mae and Freddie Mac?
Okay, imagine you want to buy a house. You go to a bank and get a mortgage. Simple, right? But here's the thing — the bank doesn't actually want to hold your mortgage for 30 years. That's a long time, and the bank wants its money back so it can lend to the next person.
That's where Fannie Mae and Freddie Mac come in. They buy your mortgage from the bank, bundle it with thousands of other mortgages, and sell those bundles to investors around the world. They also guarantee that if you stop paying, the investor still gets their money.
Think of them as the plumbing of American homeownership. Without them, banks would have to keep every mortgage on their books, which means fewer loans, higher rates, and a much harder time buying a home.
How big are they?
Together, Fannie and Freddie back over $7 trillion in mortgages. That's roughly the GDP of Japan. They guarantee about 70% of all U.S. home loans. These aren't small companies — they're the backbone of the entire American housing market.
What Happened to Them?
In 2008, the housing market collapsed. You probably remember this — it was all over the news. Banks had been handing out mortgages to everyone, including people who couldn't afford them. When those mortgages went bad, the whole system nearly imploded.
Fannie Mae and Freddie Mac were right in the middle of it. The government stepped in, took control of both companies (this is called conservatorship), and injected $187.5 billion to keep them alive. In exchange, the government got senior preferred stock and warrants for 79.9% of the common shares.
Fair enough so far, right? The government saved them. But here's where it gets controversial...
Government takes control. $187.5B injection. Dividends on all preferred stock suspended. The deal: government gets a 10% annual dividend and someday gets paid back. Seems reasonable.
Here's the plot twist. The companies started making money again — a lot of money. Instead of collecting their 10% dividend, the government quietly changed the rules: now they take 100% of the profits. Every quarter. Forever. The companies can never build capital, never pay back their debt, and never leave government control. Shareholders called it legalized theft.
Shareholders sued. A lot. Cases went all the way to the Supreme Court. The key argument: the government can't just take everything from private shareholders. Court discovery revealed internal documents showing the Sweep was designed to trap the companies permanently. The Supreme Court said FHFA's structure was unconstitutional and sent cases back to lower courts.
New administration. New FHFA leadership. Treasury Secretary talks openly about releasing the companies. The companies have now sent over $310 billion to the government — far more than the $187.5B bailout. The conversation shifts from "if" to "when" and "how."
Wait, You Can Buy Their Stock?
Yep. Even though they're under government control, their shares still trade on the OTC (over-the-counter) market. It's not like buying Apple on the NYSE — it's more like a back-alley stock exchange — but most brokerages let you do it.
There are two types of shares you can buy:
Common Stock
Tickers: FNMA (Fannie) and FMCC (Freddie)
Regular shares. You own a piece of the company. The catch? Treasury has warrants for 79.9% of the common stock, which means massive dilution. High risk, high potential reward, very uncertain outcome.
Preferred Stock
Examples: FNMAS, FMCKJ, FNMAT (26+ series)
These have a par value of $25 or $50 — a contractual amount they should be redeemed at. They trade at steep discounts right now. Preferred shareholders have stronger legal standing than common shareholders.
The analogy: Common stock is like having a ticket to a concert that might happen — you could get in, or you could get turned away at the door. Preferred stock is like having a receipt for a $25 ticket you already paid for — you have a legal claim to get that value back, even if the concert got delayed by 17 years.
Why Would Someone Invest in This?
The bull case comes down to one word: discount. Here's the logic:
The companies are massively profitable
Fannie and Freddie combined earn $20-30 billion per year. They've sent over $310 billion to Treasury — far more than the $187.5B bailout. These are not failing companies.
The stock trades at a huge discount
Preferred shares with a $25 par value might trade for $5-10. If the company exits conservatorship and honors that $25 par value, you could see 2-5x your money.
The political winds have shifted
The current administration has signaled interest in privatization. Treasury Secretary Scott Bessent has publicly discussed releasing the GSEs. FHFA leadership has changed.
The legal case is strong
Courts have found the Net Worth Sweep problematic. Internal government documents showed it was designed to trap shareholders. The legal pressure hasn't gone away.
What Could Go Wrong?
If this were a sure thing, everyone would own it. Here's what keeps people up at night:
Government could dilute shareholders
In a recapitalization, Treasury could convert their warrants and senior preferred in ways that massively dilute both common and preferred shareholders. The terms of any deal are unknown.
The timeline is unknown
People have been waiting since 2008. That's 17+ years. It could be another year or another five. The opportunity cost is real — you could have been in the S&P 500 this whole time.
Common stock could get wiped out
Treasury's warrants for 79.9% of common stock could result in enormous dilution. If they exercise those warrants, existing common shareholders could end up with almost nothing.
Preferred might get a haircut
Even preferred shareholders might not get full par value. A restructuring could offer 50 cents on the dollar, or swap preferred for common stock at unfavorable terms.
Politics can change overnight
A new administration, a new FHFA director, or a single tweet could shift the entire landscape. You're betting on Washington, D.C. — not exactly a stable place.
Liquidity is thin
These stocks trade on the OTC market, not the NYSE. Bid-ask spreads can be wide. Getting in and out of large positions is harder and costs more.
Glen's Approach
I'm Glen. I've been researching this trade for 12 years. I hold all 26 series of junior preferred stock across both Fannie Mae and Freddie Mac. My entire net worth is in this position.
Why preferred over common? Because preferred shares have contractual rights. They have a stated par value. They have a defined place in the capital structure. Common shareholders are betting on goodwill from the government. Preferred shareholders are betting on the law.
Is this risky? Absolutely. I've written 8 books about it. I've had years where I questioned everything. But after 12 years of research, I believe the legal and economic case for preferred shareholders is strong.
Frequently Asked Questions
What are Fannie Mae and Freddie Mac?
Fannie Mae and Freddie Mac are two massive companies that keep the American mortgage system running. They buy mortgages from banks, bundle them into securities, and guarantee the payments. Think of them as the plumbing behind almost every home loan in America.
Are Fannie Mae and Freddie Mac part of the government?
Not exactly. They were created by Congress and have a government mission, but they are shareholder-owned corporations that trade on public markets. Since 2008 they have been under government control (conservatorship), which makes the situation unique.
Can I buy Fannie Mae or Freddie Mac stock?
Yes. Common shares (tickers FNMA and FMCC) and multiple series of preferred stock all trade on the OTC (over-the-counter) market. Most major brokerages let you buy them, though some charge extra fees for OTC trades.
What is the difference between common and preferred stock?
Common stock gives you ownership but is last in line if the company pays out money. Preferred stock is higher in the pecking order and has a specific par value (like $25 or $50) that it should be redeemed at. Preferred shareholders have stronger contractual rights.
What is conservatorship?
Conservatorship is when the government steps in to run a company. Since September 2008, the Federal Housing Finance Agency (FHFA) has controlled Fannie Mae and Freddie Mac. The goal was originally to stabilize them, but 17+ years later they are still under government control.
What was the Net Worth Sweep?
In 2012, the government changed the bailout terms so that every dollar of profit Fannie and Freddie earned went straight to the U.S. Treasury. Not 10%, not a fixed amount, but literally everything. This meant the companies could never build capital, never pay back shareholders, and never exit conservatorship. Shareholders call it the largest government taking of private property in American history.
Why would someone invest in GSE preferred stock?
The bull case is simple: preferred shares have a par value of $25 (or $50 for some series) but many trade for far less. If the government releases the companies from conservatorship and honors those contractual values, investors could see very large returns. The risk is that the government could restructure or dilute shareholders instead.
Is GSE investing risky?
Extremely. This is a bet on government policy, court decisions, and political will. The timeline is unknown, common stock faces potential dilution from Treasury warrants, and there is no guarantee preferred shareholders will receive par value. This is not a safe, diversified investment. Do your own research.
Key Terms Glossary
Bookmark this section. You'll hear these terms a lot if you start following the GSE story.
GSE
Government-Sponsored Enterprise. A private company created by Congress to serve a public purpose. Fannie Mae and Freddie Mac are the two housing GSEs.
Conservatorship
When a government regulator takes control of a company. FHFA has controlled Fannie and Freddie since September 2008.
Net Worth Sweep
The 2012 change (Third Amendment) that redirected 100% of Fannie and Freddie's profits to the U.S. Treasury, preventing the companies from ever building capital.
Preferred Stock
A class of stock with a fixed par value and higher claim on assets than common stock. Fannie and Freddie have 26+ series of junior preferred stock outstanding.
Par Value
The face value of a preferred share, typically $25 or $50. In a recapitalization, preferred shareholders hope to receive this amount (or close to it).
Common Stock
Regular shares (FNMA/FMCC) that represent ownership. Common shareholders are last in line and face dilution from Treasury's warrants for 79.9% of the companies.
OTC Market
The Over-the-Counter market where Fannie and Freddie shares trade. They were delisted from the NYSE in 2010 but still trade electronically through OTC Markets Group.
FHFA
The Federal Housing Finance Agency. The independent regulator that serves as conservator of Fannie Mae and Freddie Mac.
Treasury / PSPA
The U.S. Department of the Treasury holds Senior Preferred Stock and warrants in both companies through Preferred Stock Purchase Agreements signed in 2008.
Recapitalization
The process of building up the companies' capital reserves to safe levels so they can exit conservatorship and operate as private companies again.
Third Amendment
The third change to the original bailout agreement, which enacted the Net Worth Sweep in August 2012. The most controversial amendment and the subject of numerous lawsuits.
Junior Preferred
The 26+ series of preferred stock issued before conservatorship. They sit below Treasury's Senior Preferred but above common stock. Tickers like FNMAS, FMCKJ, FNMAT, etc.
Ready to Go Deeper?
Now that you've got the basics, here's where the rabbit hole goes:
Not Financial Advice
Everything on this page is for educational purposes only. Glen Bradford is not a financial advisor. He is a guy on the internet who has put his entire net worth into one trade and writes about it. Do your own research. Talk to a financial advisor. Understand the risks. Past performance doesn't guarantee future results. Don't invest money you can't afford to lose.
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