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Fannie Mae: Money-Making Winner

Some investors are obviously thinking that with Fannie seemingly primed to repay half of what it owes the government, the now highly profitable company has a chance to go back to operating independently, which would mean its common shares would have real value.

Freddie Mac is in a similar situation, owing the federal government $72.2 billion as of Dec. 31, with a DTA valuation allowance of $31.7 billion. Freddie reported net income of $4.5 billion for the fourth quarter and $11 billion for all of 2012. The company paid the U.S. Treasury dividends totaling $23.8 billion in dividends from 2008 through 2012.

Preferred shares of both mortgage giants have also been quite volatile, since preferred shareholders -- who saw their dividends suspended immediately after the Federal Housing Finance Agency took over Fannie and Freddie in September 2008 -- will be ahead of common shareholders if private investors eventually unlock value from the companies.

For example, Fannie's preferred series E (FNMFM) shares, with a par value of $50.00 and a coupon of 5.10%, rose 23% to close at $8.00. Freddie Mac's preferred series Z (FMCKJ) shares, with a coupon of 5.375% and a par value of $25, rose 15% to close at $3.88.

While being careful not to say that Fannie and Freddie's common and preferred shareholders should walk away empty handed, former Massachusetts Rep. Barney Frank -- who chaired the House Financial Services Committee when the companies were taken under government conservatorship -- said in a recent interview with TheStreet's Dan Freed that he " has little sympathy for the vultures" looking to make a quick killing on the shares.

In an interview with TheStreet's Shanthi Bharatwaj, KBW senior vice president for Washington research Brian Gardner on Monday said the notion among some investors that Fannie and Freddie's non-government preferred shareholders might see their dividends restored, was " pure fantasy."

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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